TLDR
- ESMA warns crypto could threaten financial stability as it grows and integrates with traditional finance
- Executive Director Natasha Cazenave states sharp drops in crypto prices could affect the broader financial system
- Crypto currently accounts for only 1% of global financial assets but interconnections with traditional markets are growing rapidly
- EU has implemented MiCA regulation, but Cazenave states “there is no such thing as a safe crypto-asset”
- EU adoption lags behind US, with 95% of European banks avoiding crypto activities while 10-20% of European investors have crypto exposure
The European Securities and Markets Authority (ESMA) has issued a warning about the potential risks cryptocurrencies pose to broader financial markets as the sector continues to grow and integrate with traditional finance. ESMA Executive Director Natasha Cazenave highlighted these concerns in an April 8 statement to the European Parliament’s Economic and Monetary Affairs Committee.
Today in the ECON Committee, the role of crypto assets in relation to financial market stability was discussed. The European Central Bank (ECB) and the European Securities and Markets Authority (ESMA) were present.
I raised a critical question about the digital euro.… pic.twitter.com/KST7FRBhFF
— Engin Eroglu (@EnginEroglu_FW) April 8, 2025
“We cannot rule out that future sharp drops in crypto prices could have knock-on effects on our financial system,” Cazenave stated.
She pointed out that while crypto currently represents only about 1% of global financial assets, its influence could grow as it becomes more entwined with traditional markets.
Cazenave noted that interconnections between crypto and traditional markets are expanding quickly. This is happening most rapidly in the United States, which has generally adopted a more crypto-friendly regulatory approach.
“Crypto-assets markets evolve quickly, in an often unpredictable manner, and we need to keep a close eye on these developments,” she said. “Turmoil, even in small markets, can originate or catalyze broader stability issues in our financial system.”
Specific Concerns and Recent Incidents
The ESMA’s concerns cover a range of issues within the crypto ecosystem. These include the rise of spot crypto exchange-traded funds and increasing stablecoin use.
Cazenave also pointed to recent security breaches and scandals. She specifically mentioned the $1.4 billion Bybit exploit and the collapse of FTX in November 2022.
These incidents highlight the ongoing volatility and risks associated with cryptocurrency markets. They demonstrate why regulators remain cautious about the sector’s growth.
The EU has already taken steps to regulate the crypto industry through the Markets in Crypto-Assets (MiCA) regulation implemented last year. While Cazenave described MiCA as a “breakthrough” for crypto regulation, she emphasized that additional rules may be needed to address future risks.
“There is no such thing as a safe crypto-asset,” Cazenave warned in her remarks.
EU Lags Behind US in Adoption
The warning comes as both crypto and stock markets have experienced double-digit declines in recent weeks. These drops have been linked to the Trump administration’s tariff plans.
Despite growing regulatory concerns, crypto adoption continues to increase globally. However, Europe appears to be moving more cautiously than the United States.
According to Cazenave, over 95% of European banks have no involvement in crypto-related activities. They remain firmly on the sidelines of the industry.
Retail participation is growing, though. An estimated 10% to 20% of European investors now have some exposure to crypto assets.
This level of retail adoption is similar to global trends but still lags behind the United States. Most reports measuring US crypto adoption suggest that between 15% and 28% of the population has invested in cryptocurrencies.
The ESMA’s warning reflects the ongoing tension between innovation in financial markets and the need to protect stability. As crypto continues to evolve and grow, regulators face the challenge of balancing these competing interests.
Cazenave stressed that while current risks to financial stability from crypto aren’t yet critical, the situation requires “continued close monitoring.” This is especially true in the current market environment, where even small market disruptions could have wider impacts.
Recent developments in the US may further complicate the regulatory landscape. The Trump administration has signaled a more relaxed approach to crypto regulation, and reports indicate the US Justice Department is disbanding its National Cryptocurrency Enforcement Team.
These diverging regulatory approaches between the EU and US could shape how the crypto industry develops in the coming years. They may also influence the extent to which crypto becomes integrated with traditional financial systems.
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