Concerns raised over EU exposure to crypto

The European Securities and Markets Authority has argued too many financial institutions in the EU have direct exposure to cryptocurrencies with unpredictable consequences.

The European Securities and Markets Authority (ESMA) has become the latest financial watchdog to issue a warning about the way cryptocurrency crashes may affect conventional financial markets.

Even though many organizations have refuted similar claims over the past years, ESMA’s recent warning comes on the tail of new developments and information.

The assessment also comes at a time when the European Union (EU) has passed a new resolution simplifying tax collection from crypto and the political bloc has passed a regulatory framework known as the Markets in Crypto Assets Regulation (MICA) to introduce supernational regulation on cryptocurrencies.

So, where does this leave the Union? According to ESMA, cryptocurrencies’ volatile cycles are not something to simply shrug off.

“Due to their volatile growth cycles, and as long as relevant regulatory provisions do not apply, crypto-assets entail numerous risks which may in future become relevant for financial stability”, the regulator said.

ESMA continued that there are already too many channels that connect traditional finances with the cryptocurrency system. In fact, 90 European investment funds already have direct exposure to crypto which make the domino effects unpredictable and dangerous.

ESMA warned that the adoption of more crypto by financial institutions and leading companies, such as Tesla, could only lead to increased exposure in the lack of regulation and clarity about much of the sector, triggering unexpected consequences for retail investors worldwide, and particularly in the EU.

Instead, ESMA strongly recommended that the adoption of cryptocurrencies is slowed down in favor of introducing more regulation, including MICA. Under MiCA, expected to be adopted in 2024, ESMA will have greater powers to steer the market as it sees fit.

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Written by Alex


Alex is a well-rounded crypto writer who focuses on general market and legal developments. His main interest lies in how crypto gaming can become a more permanent part of the gaming landscape and how blockchain holds benefits to players they are not even aware of.

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