Crypto Poses Risks To The Financial Stability: ECB Report

Crypto poses risks to the Financial stability of the region according to the latest European Central Bank report, urging for more changes in the sector so let’s read more today in our latest cryptocurrency news.

The ECB report titled “DEcrypting financial stability risks in crypto-asset markets” is a part of the Financial Stability Review while the regulator outlined the dangers that emerge with the integration of crypto with traditional finance:

“If the present trajectory of growth in the size and complexity of the crypto-asset ecosystem continues, and if financial institutions become increasingly involved with crypto-assets.”

The report gives attention to the current risks posed to the individual crypto traders and it is far more preoccupied with the theoretical disaster scenario where the crypto marekt crash akin to what happened, triggers a compatible crash on the traditional markets. The report claims that this event is possible if there are no changes made to how crypto is regulated and integrated into the broader economy. In such vein, the report connected the market to a subprime mortgage market responsible for crashing the economy in 2008:

“Despite recent declines, they [cryptocurrencies] remain similar in size to, for example, the securitized sub-prime mortgage markets that triggered the global financial crisis of 2007-08.”

One of the main ways crypto can become further integrated with the traditional economy and then increase the risk of disaster is via the widespread adoption of crypto by financial institutions or as an accepted payment method. The report shows the integrations will increase the potential for a spillover effect on the entire economy especially if leverage is employed. Complicating the matter furhter is that the adoptions anywhere and not in the EU alone, can trigger a global financial meltdown:

 “As this is a global market and therefore a global issue, global coordination of regulatory measures is necessary.”

Fidelity as the biggest provider of 401K in America, accounted that it will start allowing workers to save up to 20% of their retirement in BTC and Balenciaga also became the latest fashion label to allow online and in-store payments with crypto. The ECB report urged the region to implement its recently passed Markets in Crypto Asset Regulation legislation that aims to create a legal framework for regulating crypto in the EU region. The report noted that these regulations can’t be implemented until 2024 when the market will be further integrated into the broader economy however the laws will look like remain to be seen and other countries like the US already struggled to reconcile the need for oversight with the decentralized nature of the market.