ESMA Warns Crypto-Traditional Finance Links Pose Risk of Shock Spillovers

The European Securities and Markets Authority (ESMA) has sounded an alarm about the increasing risk of shock spillovers between the crypto market and traditional finance. The warning comes as the overlap between these two markets grows rapidly.

Crypto assets are becoming more integrated into mainstream finance, and this integration could emerge as a new source of financial stability risk. ESMA cited growth in the tokenized stock market and hacks in decentralized finance (DeFi) as leading risk factors.

The agency also expressed concerns about crypto-based prediction markets. If trading shifts on-chain, detecting unfair trading practices such as insider trading and coordinated price manipulation could become more complicated.