EU Markets Regulator Warns Crypto Could Threaten Financial Stability

Highlights:

• ESMA warns that future sharp declines in crypto prices could impact financial stability.
• Over 95% of EU banks don’t engage with crypto, but retail participation is growing.
• Cazenave calls for closer monitoring of crypto’s growing connections with traditional markets.

The European Securities and Markets Authority (ESMA), the body responsible for overseeing the EU’s financial markets, has raised concerns over the rising risks posed by cryptocurrencies. In a statement to the Economic and Monetary Affairs Committee on April 8, ESMA Executive Director Natasha Cazenave suggested that future sharp declines in crypto prices could potentially impact the broader financial system.

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

Cazenave Warns of Rising Crypto Risks Despite Small Market Share

Cazenave said crypto is only 1% of global financial assets. She said it’s too small to affect big markets now. The agency noted that over 95% of banks across the EU remain uninvolved with cryptocurrency activities. However, retail participation in crypto is increasing, with an estimated 10% to 20% of European investors now having crypto exposure. This rise in participation aligns with the growing global interest in cryptocurrencies, according to Cazenave.

Natasha Cazenave warned that the growing interconnections between crypto and traditional markets, especially in the more crypto-friendly US, require closer monitoring. She warned that turmoil, even in small markets, could trigger or escalate broader stability issues in the financial system.

She said:

“Crypto-assets markets are still comparatively small. However, in the current market environment, turmoil even in small markets can originate or catalyse broader stability issues in our financial system.” 

Cazenave highlighted the risks of a stablecoin collapse, particularly those pegged to the dollar. She warned that such an event could undermine the value of financial assets backing stablecoins. This could lead to ripple effects across broader markets, affecting overall stability.

Markets Struggle Amid Trump’s Tariffs and Geopolitical Tensions

Cazenave’s warning comes as markets face chaos, largely due to the impact of Trump’s tariffs. She said EU financial markets are under considerable strain due to ongoing political and geopolitical developments.

Cazenave also welcomed the full implementation of the Markets in Crypto-Assets Regulation (MiCA) in December last year. She described MiCA as a crucial step in addressing crypto risks in the EU. 

The warning from the securities regulator comes a few months after it called for the delisting of stablecoins that were non-compliant with MiCA rules. Additionally, BTC’s recent climb to a record $100,000 market value has once again sparked renewed concerns among regulators and analysts. These concerns focus on the potential risks Bitcoin poses to investors and the broader financial system.

Trump Tariffs Spark Belief Bitcoin Could Outlast the US Dollar

Analysts believe Bitcoin may soon challenge the US dollar due to Trump’s global tariffs. Jeff Parks from Bitwise Invest sees a higher chance that Bitcoin will outlast the dollar. As confidence in the US dollar declines, the Bitwise CEO suggests investors could increasingly shift toward Bitcoin.

higher chance bitcoin survives over the dollar in our lifetime after today

first time the thought hit me and didn’t feel like theory but an actual truth to grapple with

— Jeff Park (@dgt10011) April 9, 2025

Bitwise CEO Hunter Horsley said trust in the US dollar is dropping, leaving fewer choices for investors. He mentioned gold has problems with storage and shipping, so Bitcoin might be the only option. “You wind up buying Bitcoin,” Horsley said.

You're a nation that doesn't trust the U.S. right now.

You want to store value in something other than U.S. assets.

But you don't want to own other nations' currencies/debt/assets because they're even weaker and you expect they'll debase it.

So you could buy gold. But how…

— Hunter Horsley (@HHorsley) April 9, 2025