Is Crypto a Ticking Time Bomb? EU Watchdog Warns of Volatility

EU Regulator Issues Chilling Warning: Is Crypto a Ticking Time Bomb?

As the cryptocurrency business expands and becomes more integrated with established financial actors, the European Securities and Markets Authority (ESMA) has issued a warning that the stability of existing financial markets will be increasingly threatened.

We cannot rule out that future sharp drops in crypto prices could have knock-on effects on our financial system,

ESMA’s executive director Natasha Cazenave

However, according to Cazenave, hardly 1% of all financial assets worldwide are currently made up of cryptocurrency. It is not yet big enough, in her opinion, to have a big impact on conventional financial markets.

Cazenave Cautions: Crypto Market Turmoil Could Spark Global Financial Instability

Particularly in the more crypto-friendly US, she cautioned that the connections between cryptocurrency and traditional markets are expanding quickly. Cazenave even demanded increased oversight.

Crypto-assets markets evolve quickly, in an often unpredictable manner, and we need to keep a close eye on these developments. Turmoil, even in small markets, can originate or catalyze broader stability issues in our financial system.

Cazenave

Cazenave’s concerns included everything from the use of stablecoins and spot crypto exchange-traded funds to hacks, frauds, and scandals, with particular attention to the recent $1.4 billion Bybit exploit and the November 2022 collapse of FTX. The Markets in Crypto-Assets (MiCA) law, which was introduced last year, is the most notable of the steps the European Union has already put in place to protect against crypto dangers. There is no such thing as a safe crypto-asset, and additional regulations might be required to reduce future dangers, Cazenave said, even though MiCA represented a success for crypto regulation.

Although the US has seen a surge in the adoption of cryptocurrencies, Cazenave pointed out that more than 95% of European banks are still passive and not involved in any crypto-related operations. Nonetheless, Cazenave said that retail involvement is increasing and that between 10% and 20% of European investors are exposed to cryptocurrencies, which is consistent with the growing interest around the world.

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