“The nature and scale of crypto asset markets are rapidly evolving and if current trends continue, crypto assets will pose risks to financial stability”assessed the ECB.
According to the European Monetary Authority, while the interconnection between unbacked crypto assets and the traditional financial sector “It has grown considerably, so far the interconnections and other channels of contagion have remained small enough.”
For instance, he explained that investors have been able to handle the €1.3 trillion drop in unbacked crypto asset market capitalization since November 2021, without incurring financial stability risks.
But he warned that at this rate, a point will be reached where unbacked crypto assets pose a risk to financial stability.
In addition, he indicated that systemic risk “increases according to the level of interconnection between the financial sector and the crypto asset market, the use of leverage and credit activity.”
For this reason, he pointed out that regulators and supervisors need to “carefully monitor developments and close regulatory loopholes or arbitrage possibilities. Since this is a global market and therefore a global problem, global coordination of regulatory action is necessary.”
“It is important to close the regulatory and data gaps in the crypto asset ecosystem”evaluated the ECB, for which any additional step that allows the traditional financial sector to increase its interconnection with that market “should be carefully weighed and priority given to avoiding financial stability risks.”
“This is particularly true when considering interconnections with parts of the financial system that are strictly regulated and benefit from a public safety net,” he added.
In the crypto market, the ECB detected several risks for consumers, including: misleading information, lack of recourse, product complexity and leverage, fraud and money laundering, and market manipulation.
A survey conducted by that bank revealed that up to 10% of European households hold cryptocurrencies, with investments mostly not exceeding $5,350.
Source: Ambito
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