European Officials Warn Increased Adoption of Cryptocurrencies Could Affect Traditional Finance

As the cryptocurrency market expands at an unprecedented rate and digital assets such as Bitcoin (BTC) and Ethereum (ETH) become more popular, some investors may abandon fiat currency, which is Concerns have been raised among major European regulators about what this means for stability. of traditional finance.

One stakeholder is the European Securities and Markets Authority (ESMA), which, as expressed in its report, believes that cryptocurrencies pose myriad risks to financial stability due to their volatility and lack of regulation. I’m here.Cryptoassets and their risks to financial stability]will be released on October 4th.

According to ESMA:

“Due to the volatile growth cycle, crypto-assets carry a number of risks and may be relevant to financial stability in the future, unless relevant regulatory provisions are applied.”

Market cap charts of several cryptos expressed in billions of euros. sauce: esma report

Need for ongoing supervision

In the report, the regulator acknowledged that “currently, crypto assets are still small in scale and have limited mutual links with traditional markets,” but noted that “market growth could occur suddenly. Because this situation is subject to change, risk communication can occur through different channels.

Regulators acknowledge that crypto market volatility has not yet carried over into mainstream finance, but this potential should not be overlooked.

“To date, the turmoil in cryptocurrency markets—much of which can be attributed to vulnerabilities inherent in market structures and underlying technologies—has not spilled over into traditional financial markets or the real economy. However, there could be ripple effects depending on how the current risks are contained and how the interrelationships between both systems evolve.”

For these reasons, ESMA has emphasized the need for continued oversight of the cryptocurrency sector and its interconnectedness with the broader financial system.

Other Authority Concerns About Crypto

Meanwhile, ESMA is not the only financial authority concerned about the impact of cryptocurrencies on the traditional financial system.

As it happens, European Central Bank (ECB) President Christine Lagarde herself has expressed concern that the growth of cryptocurrencies could pose a threat to the traditional banking system, Finbold reports.

Elsewhere, U.S. Federal Reserve Board member Michelle W. Bowman has also expressed concern over multiple issues related to cryptocurrencies, which she said pose risks to the banking sector and threaten regulatory prospects. I am questioning.

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