PARIS (Reuters) – European Union Securities Watchdog warned on Tuesday that the cryptocurrency industry problem could pose risks to broader financial stability in the future as the sector grows and relations between it and traditional financial markets increase.
The appeal of caution from the European Securities Markets Agency (ESMA) is because US economic policies are global markets and US authorities are trying to eliminate some of the barriers between crypto and traditional banking sectors.
“EU financial markets are under severe tensions that come from broader political and geopolitical developments, as we speak,” ESMA executive director Natasha Cazenave said in a speech to the European Parliament posted on the Watchdog website.
Since US President Donald Trump announced a tariff snowstorm last week, stock markets have fallen, leading to a sharp drop in crypto prices. However, asset prices recovered some of these losses across the market on Tuesday.
“There are still relatively few cryptocurrency markets, but in the current market environment, even in small markets, disruption can cause or catalyze wider stability issues in our financial system,” Cazeneve said.
The ESMA, which has repeatedly warned about crypto risks, added that the sector needs to continue closely monitored, and that the risk to financial stability from Crypto is not yet significant.
The crypto-focused fund accounts for less than 1% of the EU fund universe, with ESMA noting that 95% of EU banks are not engaged in crypto activity.
The ESMA warning has led to Trump, whose families are building crypto businesses, calling for ease of crypto regulations.
US regulators have made it easier for banks to tackle crypto-related activities easily. Reuters reported Tuesday that the U.S. Department of Justice is disbanding its national cryptocurrency enforcement team.
Running in Stablecoin – a kind of cryptocurrency normally pinned in the dollar – could affect the price of the financial assets used to support it, Esma said it had potentially wider market results.
(Reporting by Elizabeth Howcroft, Editing by Tommy Regiori Wilkes and Joe Babiel)