A new report from the European Systemic Danger Board (ESRB) found that the industryโs economic impact is minimal, but recommends policy options that would allow EU bodies to better monitor the cryptocurrency sector and mitigate any risks.
Between other suggestions, such as actively monitoring contagion and education, the ESRB likewise highlighted the importance of monitoring leveraged trading in the cryptocurrency industry.
โLeverage in the crypto- investment world is only a challenge if there are connections with the traditional financial systemโsomething that hasย toย be monitored,โ it read.
Assessing the state of cryptocurrency trading in Europe today, the European watchdogโs report likewise impliesย that โcoordination and cooperationโ betwixt Europe and countries abroad isย importantย to ensuring that this economic impact does indeed stay low. This is owingย to the โcross-border natureโ of digitalย currencies, stated the ESRB.
Itโs expected to generate further discussion around the matter, inย particularย how to secure that theย dangers related to the interconnection of cryptocurrency and traditional finance remain low.
โThe approach should be to further monitor the situation and not implement strict policies preemptively, inย particularย as the danger for banks from direct exposure to crypto-assets has already been limited by the Basel Committeeโs mandate that crypto-assets other than tokenized RWAs and stablecoins should have a danger weight of 1,250%, which effectively requires banks to back these assets 1:1 with the bankโs regulatory capital,โ partner and chief legal officer at Europe-based financing company Greenfield Financialย resources Christian Zimmermann informed Decrypt.
Last December, the Basel Committee introduced a suite of banking standards for institutions looking toย win access to digitalย currencies, some of which were likewise adopted by the European Parliamentโs Economics and Monetary Affairs Committee in January.
The report may likewise inform a future review of Europeโs landmark Markets in Cryptocurrency Assets (MiCA) regulatory framework, which set a unified standard for cryptocurrency investment regulation across EU member states.
Regulatory bodies in the EU have been watching cryptocurrency markets and Decentralizedย Finance closely following a turbulent period for the industry.
In the last 18 months, a bear market brought down the price of Bitcoinย (BTC) by 77%, Lunaโs primary developer was arrested in Montenegro on fraud charges, and the implosion of FTXย Tradingย Ltd caused a crisis of faith for numerous investors and customers.
