ESMA Says Crypto Could Catalyse Financial Stability Issues Amid ‘Severe Strain’ From Geopolitical Developments

The European Securities and Markets Authority (ESMA), which oversees the EU’s financial markets, has warned about crypto-related financial stability risks.

Speaking at the European Parliament on Tuesday, ESMA executive director Natasha Cazenave highlighted crypto’s potential implications on financial stability. Her warning comes at a time when the markets are witnessing mayhem, following Trump’s tariffs impact.

“EU financial markets are, as we speak, under severe strain coming from the broader political and geopolitical developments,” said Cazenave.

Cazenave welcomed the Markets in Crypto-Assets Regulation (MiCA), which went into full implementation in December 2024. “It is an important milestone in addressing crypto-assets risks in the EU and we are committed to its successful implementation,” she said.

The fresh warning from the securities regulator arrives a few months after it called for the delisting of stablecoins that were non-compliant with MiCA rules.

Further, Bitcoin’s surge in total market value, reaching a record level of $100,000 earlier, has revived concerns about its risks to investors and the financial system.

“These developments prompted us to renew our warning to investors in December 2024, to caution them against the crypto hype,” the ESMA executive noted. “We also made it clear that, despite MiCA, there will be no such thing as a safe crypto-asset.”

Additionally, the deteriorating macro-economic conditions, shifting investors’ sentiments and the largest-ever crypto hack at Bybit this year, have seen “sudden and extreme fluctuations” in crypto prices.

“Since 20225, we have been actively monitoring potential risks crypto assets could represent to financial stability,” Cazenave added.

The ESMA noted that though risks to financial stability stemming from crypto-assets are increasing, they are “not significant yet”. Cryptos contribute only 1% to total global financial assets and have limited integration with traditional finance.

Besides, more than 95% of banks in the EU do not engage in crypto-related activities, the agency added.

“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 stressed that ESMA should take a “forward-looking approach” and continued close monitoring as crypto markets are evolving rapidly.

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