ESMA, established as part of the European System of Financial Supervision, is tasked with enhancing investor protection and promoting stable and orderly financial markets within the EU. The cryptocurrency industry has been under ESMA’s scrutiny for years, given its volatility and potential systemic risks. Previous warnings, such as those in 2021 and 2022, highlighted the high risks for investors in non-regulated crypto-assets and the speculative nature of these assets (ESMA sees high risk for investors in non-regulated crypto assets). These warnings often emphasized the lack of regulatory safeguards and the potential for significant investor losses.
The Markets in Crypto-Assets Regulation (MiCA), which entered into force in 2024, represents the EU’s first comprehensive set of rules for crypto-assets, aiming to provide transparency, disclosure, and supervision (Markets in Crypto-Assets Regulation (MiCA)). However, ESMA’s April 8, 2025, warning suggests that despite these regulations, new risks are emerging due to the sector’s growth and interconnection with traditional finance.
The Warning: Details and Context
On April 8, 2025, Natasha Cazenave, in her speech to the European Parliament, warned that problems in the cryptocurrency industry could pose risks to broader financial stability in the future. This statement was posted on ESMA’s website and reported by multiple news outlets, including Reuters and Investing.com (EU markets watchdog warns of crypto-related financial stability risks | Reuters, EU markets watchdog warns of crypto-related financial stability risks By Reuters). The warning comes at a time when EU financial markets are under severe strain due to broader political and geopolitical developments, particularly U.S. President Donald Trump’s tariff announcements from the previous week.
Cazenave noted, “EU financial markets are, as we speak, under severe strain coming from the broader political and geopolitical developments.” She further elaborated that crypto-assets markets, while still comparatively small, could catalyze broader stability issues in the current market environment. Specifically, she cautioned, “Turmoil even in small markets can originate or catalyse broader stability issues in our financial system” (EU markets watchdog warns of crypto-related financial stability risks | MarketScreener). However, she also clarified that risks to financial stability from crypto are not yet significant, indicating a proactive approach to monitoring.
Reasons for the Warning: Growing Sector and Interconnectedness
The primary reason for ESMA’s warning is the rapid growth of the cryptocurrency sector and its increasing ties with traditional financial markets. As crypto-assets like Bitcoin and Ethereum become more integrated into financial systems, their volatility and potential for systemic risk grow. For instance, institutional adoption, such as through exchange-traded products (ETPs) and custody services, has increased, potentially amplifying the impact of crypto market movements on traditional finance.
Recent market developments, such as the sharp drop in crypto prices following Trump’s tariffs, illustrate this interconnection. Stock markets have tumbled, leading to a ripple effect on crypto, with prices recovering slightly on April 8, 2025, but still under pressure (EU markets watchdog warns of crypto-related financial stability risks | CNA). This volatility underscores ESMA’s concern that problems in crypto could spill over, affecting broader financial stability.
ESMA’s report also provided specific figures to highlight the sector’s growth:
- The total market value of crypto-assets is approximately 3 trillion euros, representing about 1% of global financial assets.
- Global net asset value (NAV) of crypto funds as of January 31, 2025, is around 160 billion euros.
- Stablecoins have a total value of 215 billion euros, up significantly from previous years.
These figures underscore how certain segments, particularly investment products and stablecoins, are rapidly expanding and could act as contagion channels, where issues in crypto could spread to traditional markets.
