ESMA Sounds Alarm: Crypto's Expanding Links Risk 'Next Market Shock' in Europe
Europe's financial markets regulator, ESMA, has issued a warning about the crypto market, pointing to deeper connections with traditional finance. According to the agency, nearly €2 trillion of market value has been stripped from cryptocurrencies since their October highs.
The convergence of crypto and traditional finance could lead to more market contagion, as seen in recent losses. Financial institutions, investment products, and tokenized assets may become avenues for these losses spreading across markets.
ESMA also highlighted the growing risks associated with decentralized finance (DeFi), which has experienced successful hacks. This interconnectedness can cause losses or failures in other parts of the network.
The agency emphasized that retail investors remain at risk from digital platforms, social media, and speculative trading. Unskilled traders may be prone to receiving false information and making quick decisions.