The crypto industry’s deepening ties to banks and asset managers will pose a risk to financial stability, the European Central Bank has warned, in the latest sign of how central banks and governments are stepping up their scrutiny of the market.
The ECB said on Tuesday it had done “a deep dive into cryptoasset leverage and crypto lending” and found evidence that these activities were becoming more risky, complex and interconnected with traditional institutions.
“Investors have been able to handle the €1.3tn fall in the market capitalisation of unbacked cryptoassets since November 2021 without any financial stability risks being incurred,” the ECB said. “However, at this rate, a point will be reached where unbacked cryptoassets represent a risk to financial stability.”
The first such warning from the ECB, published as part of its twice-yearly financial stability review, followed similar messages from US and UK authorities, which have been unnerved by a series of recent failures in the crypto market.
Bitcoin, the world’s flagship cryptocurrency, has halved in value since November and recently fell below $30,000 for the first time since last summer. The market’s most important stablecoin, tether, momentarily lost its peg to the US dollar, while its rival terraUSD all but collapsed.
US Treasury secretary Janet Yellen warned recently that stablecoins present the same kind of risks associated with bank runs, echoing a similar comparison by the Federal…
