The European Securities and Markets Authority warns that the U.S.’ crypto-friendly stance could heighten the risk in financial markets by strengthening the ties between traditional finance (TradFi) and the digital asset economy.
In an interview, a spokesperson for the European Union’s financial markets regulator stated, “This crypto-friendly stance has the potential to speed up crypto adoption, including by institutional investors. This could lead to increased interconnectedness and, in the absence of appropriate safeguards, risks of adverse spillover effects between crypto and traditional markets.”
Since taking office on Jan. 20, Donald Trump has instructed his administration to create a bitcoin reserve and encouraged the establishment of crypto-friendly policies. The crypto market responded positively to Trump’s election victory in November, with bitcoin (BTC) reaching a record high of around $109,000 on his inauguration day, according to CoinDesk data.
In a joint report released on Monday, ESMA, the European Banking Authority, and the European Insurance and Occupational Pensions Authority highlighted “volatile crypto-asset valuations, driven by expectations of U.S. deregulatory policy agenda; increasing interconnections to traditional financial markets” as a key factor in financial markets.
Additionally, Piero Cipollone, an executive board member of the European Central Bank, advocated for a digital euro as an ECB-backed digital version of the single currency to replace crypto assets, which he described as “highly volatile and speculative in nature.”
“Moreover, the United States’ efforts to maintain the dollar’s global dominance through the promotion of stablecoins worldwide present their own set of challenges,” he added.
