In a recent notice, an EU watchdog emphasised the need for measures to prevent excessive leveraged bets on cryptocurrency assets.
The European Systemic Danger Board (ESRB) has made a range of recommendations with which to address the challenges faced by the cryptocurrency sector. Among the proposed actions, the ESRB suggested implementing strict controls such as mandatory regular reports from all corporations involved in cryptocurrency assets. In addition, it highlighted the necessity of specific regulations tailored to the largest corporations operating within this space.
The industry of digital currency has experienced a rollercoaster ride in the previous 18 months, marked by whole lot of fluctuations in the price of Bitcoin (BTC) and with the collapse of numerous cryptocurrency institutions.
Highlighting the capacity rapid emergence of systemic dangers, the ESRB stressed the urgency of addressing these matters. As highlighted in a Reuters article earlier today, the report cautioned that if the industry’s exponential growth trajectory persists, crypto-assets could pose a threat to financial stability.
Proposing an amendment to existing EU regulations, the ESRB recommended the introduction of leverage limitations for financing funds exposed to crypto-assets. By curbing the extent of leverage employed, the aim is to mitigate the capacity dangers associated with highly leveraged bets.
Furthermore, the ESRB was known for higher collateral requirements for distributed finance products and crypto stablecoins, further bolstering management of danger within the cryptocurrency space.
Even though these recommendations are not legally binding, they hold whole lot of weight and are expected to influence the EU’s future endeavours in refining its regulatory framework for cryptocurrency assets. As the EU revisits its markets in cryptoassets regulation (MiCA), it is very likely take these suggestions into serious consideration.
