EU Markets Watchdog Flags Growing Risk of Crypto to Financial Stability

As crypto becomes more connected to the wider financial system, the European Securities and Markets Authority (ESMA) is urging closer oversight. Executive Director Natasha Cazenave warned that the rising involvement of traditional finance in digital assets could increase the risk of instability during market downturns.

“Crypto-assets markets evolve quickly, in an often unpredictable manner, and we need to keep a close eye on these developments,” Cazenave said during her April 8 address to the Economic and Monetary Affairs Committee.

Although crypto currently makes up only about 1% of global financial assets, Cazenave cautioned that deeper links between crypto and traditional markets—especially in the US—could magnify spillover effects if prices drop sharply.

“We cannot rule out that future sharp drops in crypto prices could have knock-on effects on our financial system,” she said. Even smaller markets, she added, can sometimes trigger wider disruptions.

The EU has already taken steps to reduce crypto-related risks. The Markets in Crypto-Assets (MiCA) regulation, which came into effect last year, was praised by Cazenave as a “breakthrough” in shaping how crypto is handled within Europe. Still, she warned, “There is no such thing as a safe crypto-asset,” and further regulatory action may be needed.

Crypto adoption patterns vary across regions. While most European banks have yet to engage with crypto, Cazenave said retail participation is growing. She noted that roughly 10% to 20% of European investors now hold digital assets. This trend is in line with global data, which places US retail adoption between 15% and 28%.

Meanwhile, both crypto and traditional stock markets have faced sharp declines in recent weeks. The ongoing market pressure comes as the Trump administration pushes ahead with tariff policies, which have increased overall economic uncertainty.

Although Europe trails the US in terms of crypto integration, regulators like ESMA are watching the space closely. The agency stressed that monitoring interconnections will remain a top priority as digital assets continue to evolve and more institutions enter the space.