one in report good Published today, part of the ECB’s twice-annual financial stability review titled “Decrypting Financial Stability Risks in the Crypto-Asset Market”, the European regulator emphasized the danger posed by the increased integration of crypto with traditional finance.
“If the current 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 concludes, “crypto-assets are critical to financial stability.” will pose a risk. ,
While the report gives some attention to the current risks for individual crypto traders, it is much more preoccupied with a theoretical disaster scenario in which a crypto market crash, which has occurred recently, triggers a comparable crash in traditional markets.
The report claims that such an event is possible if no changes are made to the way crypto is currently regulated and integrated into the wider economy.
As such, the report compared the crypto market to the subprime mortgage market responsible for tanking the global economy in 2008.
“Despite the recent decline, they [cryptocurrencies] remain similar in size to, for example, the securitized sub-prime mortgage markets that triggered the global financial crisis of 2007-08,” the report read.
ECB’s Vision of Crypto
One of the primary ways crypto can be more integrated with the traditional economy and thus increase the risk of disaster, according to the report, is the widespread adoption of crypto by financial institutions or as an accepted payment method. .
According to the report, these integrations “will increase the potential for spillovers to the broader economy, especially if leverage is employed.”
Further complicating the matter is that adoption anywhere, not just in the EU, could lead to a global financial meltdown. “Since this is a global market and therefore a global issue,” the report acknowledged, “global coordination of regulatory measures is essential.”
However, such acceptance is already well underway.
Just last month, Fidelity, America’s largest provider of 401(k) savings accounts, announced that it will start allowing workers to save up to 20% of their retirement Bitcoin, tomorrow, balenciaga became latest The fashion label allows online and in-store payments with cryptocurrency.
To mitigate these developments, the ECB report urged the EU to implement it immediately. recently passed Markets in Crypto Asset Regulation (MiCA) law, which aims to create a legal framework to regulate crypto within the European Union.
The report states that such regulations may not be implemented until 2024 when the crypto market will likely be further integrated into the broader economy.
However, what this law will look like remains to be seen. Other Countries, including the United StatesCrypto has struggled to reconcile the perceived need for oversight with the inherently decentralized nature of the market.
To this end, the ECB did not provide specific legislative solutions, only cautioning: “challenges [regarding crypto]As long as there are no standardized reporting or disclosure requirements in place, that will remain in place.”
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