EU Markets Regulator Warns Crypto Could Impact Financial Stability

TLDR

• ESMA warns crypto could threaten financial stability as market grows
• Currently crypto only accounts for 1% of global financial assets
• Growing interconnections between crypto and traditional markets raise concerns
• Over 95% of European banks have no involvement in crypto-related activities
• EU has implemented MiCA regulation but more rules may be needed

The European Securities and Markets Authority (ESMA) has issued a warning about the potential for cryptocurrency markets to disrupt traditional financial systems as the sector continues to grow and become more intertwined with conventional markets.

ESMA’s executive director Natasha Cazenave expressed concerns in an April 8 statement to the Economic and Monetary Affairs Committee. She pointed out that while crypto currently represents just 1% of global financial assets, its impact on broader markets could increase.

“We cannot rule out that future sharp drops in crypto prices could have knock-on effects on our financial system,” Cazenave stated. She emphasized that even small market disruptions can trigger larger stability issues across the financial landscape.

The warning comes as both crypto and stock markets have experienced double-digit falls in recent weeks. These declines have coincided with the Trump administration’s implementation of tariff plans.

Growing Interconnections

Cazenave highlighted that the connections between crypto and traditional markets are rapidly expanding, particularly in the United States where crypto adoption has seen faster growth. This increasing integration calls for closer monitoring of developments in the sector.

“Crypto-assets markets evolve quickly, in an often unpredictable manner, and we need to keep a close eye on these developments,” she noted. The rapid evolution of crypto markets makes them harder to predict and regulate effectively.

The ESMA director’s concerns covered a wide range of issues. These include spot crypto exchange-traded funds, stablecoin use, and security vulnerabilities exemplified by recent incidents like the $1.4 billion Bybit exploit and the collapse of FTX in November 2022.

While the European Union has already implemented the Markets in Crypto-Assets (MiCA) regulation, Cazenave suggested that additional rules may be necessary. She described MiCA as a “breakthrough” for crypto regulation but maintained that “there is no such thing as a safe crypto-asset.”

European vs. US Adoption

The adoption landscape differs between Europe and the United States. Cazenave noted that over 95% of European banks remain uninvolved in crypto-related activities.

However, retail participation is growing in Europe. An estimated 10% to 20% of European investors now have some exposure to crypto assets, which aligns with global trends.

In contrast, US crypto adoption is estimated to be between 15% and 28% of the population. The US regulatory approach has also shifted recently, with the Securities and Exchange Commission taking more positive steps toward crypto innovation.

The Justice Department in the US has also announced the disbanding of its National Cryptocurrency Enforcement Team. This represents a change in approach under the Trump administration, which appears more favorable to crypto development.

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

ESMA’s warning comes as the agency revisits the topic of crypto asset risks. Earlier this year, ESMA requested the delisting of stablecoins that remained non-compliant with MiCA rules, which went into full implementation in December 2024.

The concerns raised by ESMA reflect the complex balance regulators must strike. They aim to protect financial stability while allowing for innovation in the rapidly evolving crypto sector.

As crypto continues to grow beyond its current 1% share of global financial assets, the potential for market disruptions to spread to traditional finance increases. This dynamic relationship between emerging and established financial systems remains a key focus for regulators worldwide.

The warning serves as a reminder that while crypto markets continue to mature, they still present unique challenges for oversight and risk management that regulators must address proactively.