The European Securities & Markets Authority (ESMA) has issued another warning on the uncertainties of rising rip-offs and functional collapses as the penetration of cryptocurrency grow with time. The ESMA in its report ‘Crypto-assets and their risks for financial stability’ published on Wednesday, said that as the investment in crypto assets is growing, future crypto-crashes can affect conventional financial markets as well.
Crypto investment at its peak, stood at only 1% of the combined capitalization of global equity and bond investments. Until July 2022, New York Stock Exchange and Binance recorded annual spot trading volumes of €35 trillion and €8 trillion respectively.
The pattern of traditional financial markets is at significant risk of influence by the crypto markets, the report stated. Some crypto exchanges like Huobi Global, Bitmex and Bybit allow over 100 times leverage that triggers the risk factor. The anonymity of this crypto market is a question on its reliability. As per crypto experts, Igor Makarov and Antoinette Schoar, there have been 33 known attempts to attack consensus protocols since 2012.
There isn’t much adoption of cryptocurrency into the traditional financial system till now. But as its penetration grows, the traditional financial system is bound to face consequences. For instance, when Elon Musk’s Tesla announced the acceptance of Bitcoins first and then backed off from the decision. The impact of this is notable on the crypto prices.
The report also mentioned that a major governing authority is coming forward to set up regulations for cryptocurrencies. The European Union (EU) will provide a comprehensive regulatory framework for crypto assets- EU Markets in Crypto-Asset Regulation (MiCA).
MiCA is expected to take effect by 2024 and the European Securities & Markets Authority (ESMA) will be the authority to execute additional regulations on crypto-assets to make them function like traditional financial instruments.
Along with that, it will be enabled to keep an eye on crypto-service providers with more than 15 million customers.