The EU’s banking watchdog has issued a warning that crypto “may threaten financial stability”
To avoid shocks in that market from threatening financial stability elsewhere, a European Union watchdog advised EU authorities to restrict leveraged bets on crypto assets by creating rules for investment funds, cryptocurrency exchanges, and other businesses on May 25.
It was one of the numerous recommendations made by the European Systemic Risk Board (ERSB), which also called for new laws for the industry’s big corporations and periodic reporting from all organisations dealing with crypto assets.
It follows an unstable 18 months in which the price of Bitcoin (BTC) dropped by almost 70%, Luna failed, and FTX (an exchange) went from buying Super Bowl ads to declaring bankruptcy.
The ESRB warned in a paper that “systemic risks could emerge quickly and suddenly” and might threaten financial stability if the present trend of fast growth persists.
In addition, the ESRB suggested updating a new EU rule by “introducing leverage limits for investment funds given crypto-assets.”
It also suggested requiring more security for global financial products and stablecoins and making it harder for cryptocurrency companies to give tokens to their customers, which is one way that extended bets can be made.
The recommendations of the ESRB have no force of law, but they are likely to be taken into account as the EU works on new versions of its Markets in Crypto Assets Regulation (MiCA).
This comes following a revelation from Finbold last week that the EU Council has agreed on guidelines to gather data on cryptocurrency transactions for the purpose of providing information to tax authorities.