On April 8, 2025, Natasha Cazenave, executive director of the European Securities and Markets Authority (ESMA), addressed the European Parliament's Economic and Monetary Affairs Committee, offering key insights into the current state of crypto-assets and their potential implications for financial stability in the European Union.
Key Statements:
1. Market Growth and Risks to Investors:
- In 2024, the global crypto-asset market saw substantial growth, with a market capitalization surpassing €3.3 trillion, doubling in size from previous years.
Among the crypto-assets, Bitcoin, which dominates the market (more than 50% of the market), witnessed a significant price surge of almost 140%, reaching an all-time high of $100,000 in December 2024.
- However, despite this growth, ESMA has repeatedly warned investors about the inherent risks posed by the extreme volatility of crypto-assets.
For instance, Cazenave has highlighted that in the first quarter of 2025, despite the robust performance witnessed in 2024, the market experienced a precipitous decline, with a loss exceeding 20% in value. This decline occurred within a broader context of macroeconomic instability and apprehensions regarding technological vulnerabilities.
2. Financial Stability Concerns:
While the crypto-asset market remains relatively small in comparison with the global financial system (around 1% of total financial assets), ESMA continues to monitor potential risks, especially as integration between traditional financial systems and crypto-assets increases. Indeed, available estimates suggest that crypto adoption by retail investors in the EU could range between 10% and 20%, in line with growing investor appetite worldwide. Hence, it is possible to conceive of a scenario in which a significant exposure to these assets could precipitate a future decline in the prices of cryptocurrencies. This could, in turn, negatively affect our financial system.
Notable developments include the growing adoption of crypto-asset investment products, such as Bitcoin exchange-traded products (ETPs), which have attracted significant inflows, and the entry of pension funds into the market.
Another development concerns stablecoins, which are mostly pledged to dollars and represent approximately 8% of the total crypto market (around €210 billion). However their numbers will rise, as recent examples of announced launches show. Whilst they do not currently pose a significant threat to financial stability, should they expand substantially in the absence of a robust regulatory framework, there is, in the opinion of the ESMA a potential for them to do so.
ESMA being one of the three European Supervisory Authorities (ESA) for crypto-assets, this could lead to further EU regulations in the future.
3. MiCA and Its Role in Crypto Regulation:
In a contemporary context, the EU's Markets in Crypto-Assets Regulation (MiCA) is seen as a major step in addressing the risks associated with crypto-assets. MiCA introduces stringent requirements for crypto-asset service providers, including for stablecoin issuers, and is designed to bring stability to the market.
ESMA has already acted on MiCA compliance, issuing public statements and overseeing the delisting of noncompliant stablecoins by major EU exchanges.
4. Ongoing Monitoring and Preparedness:
ESMA stressed the importance of continued monitoring and preparedness in the face of rapid developments in crypto-asset markets. While crypto-assets remain a relatively small segment of the financial markets, their volatility and potential for significant price drops could have broader implications for the stability of financial markets, especially during times of geopolitical or economic uncertainty.
Not only to ensure effective implementation of MiCA but also to monitor emerging risks so as to address them in a timely manner, ESMA is working closely with the European Banking Authority (EBA) and national competent authorities. However, the need for international regulatory alignment is emphasized, with ESMA committing to work alongside global partners to ensure appropriate safeguards for financial stability.
We would like to thank Lauréline DeCottignies for her assistance with this insight.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
