The EU Central Bank (ECB) warns that the market is becoming more complex and linked to mainstream finance. A new report said that the crypto market’s deepening ties with banks and asset managers will pose a risk to financial stability.
Cryptocurrencies pose a threat to financial stability
The ECB said on Tuesday that it is focusing on “leveraged transactions and crypto loans” and has found evidence that these activities are becoming more risky, complex and linked to traditional institutions. told. Part of the report on the crypto market highlighted:
Investors need to take any financial stability risks, with the 1.3 trillion euro drop in the market value of unsupported cryptocurrencies since November 2021. He could manage without hearing. But at this rate, it will reach a point where unsupported cryptocurrencies pose a risk to financial stability.
The first such warning, issued as part of the biannual financial stability review from the ECB, has sent similar messages from US and UK authorities angered by a series of recent crypto market failures. followed.
The ECB’s report published during the day also included statements emphasizing the fact that all cryptocurrencies began to be controlled by regulations:
The speed of developments in the cryptocurrency market and increasing risks were also taken into account. Considering this, it is necessary to bring such assets under regulation and control as soon as possible
“Cryptocurrencies look like a ponzi scheme”
The world’s largest cryptocurrency Bitcoin, since November halving and falling below $30,000 for the first time since last summer. Tether, the market’s most important stablecoin, momentarily lost its stable value against the dollar, while its rival, terraUSD, almost collapsed.
ECB chief Christine Lagarde said on Dutch television over the weekend that a cryptocurrency “has no value, does not stand for anything, is not a fundamental asset to trust.” Fabio Panetta, an ECB executive, recently likened the market to a “ponzi scheme” and called for regulatory restraint to avoid “an unlawful risk-taking spree”.
The EU Central Bank also addressed the risks arising from decentralized finance, or DeFi, where cryptocurrency-based software programs deliver financial services without the use of intermediaries such as banks.
Crypto lending on DeFi platforms increased 14-fold in 2021, while the total value locked in until very recently was around €70 billion, on par with small local periphery European banks.” The re-assumption that the collateral of one loan can be re-collateralized against another loan increased the likelihood of breaching leverage limits.
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