European regulator: deregulation of cryptocurrencies in the US could increase risks to traditional finance

The European Securities and Markets Authority (ESMA) has said that the US' cryptocurrency-friendly stance could increase the level of risk in financial markets by deepening the link between traditional finance (TradFi) and the digital asset economy. In a joint report, ESMA, the European Banking Authority and the European Insurance and Occupational Pensions Authority pointed to ‘volatility in crypto-asset valuations, driven by expectations of the US deregulatory policy agenda and increasing interconnectivity with traditional financial markets’ as a key driver for financial markets. A spokesperson for the EU's financial markets regulator said in an interview, ‘This cryptocurrency-friendly stance has the potential to accelerate the adoption of cryptocurrencies, including by institutional investors. This, in turn, could increase interconnectivity and, without the relevant safeguards, there could be negative spillovers between cryptocurrencies and traditional markets.’