European Central Bank Releases Warning About Bitcoin and Cryptocurrencies

The massive increase in the size of the cryptocurrency market suggests that government institutions should hurry with regulations as the industry could bring more risks for investors, especially after events like we saw recently, according to the European Central Bank, per Bloomberg.

As ECB noted in the pre-released chapter from the financial stability review, cryptocurrency is getting more popular among financial institutions, which could bring additional risks to the global financial system. The previously mentioned volatility appears to have little or no effect on the traditional financial system at all.

According to research and development efforts by regulators, cryptocurrency assets are in a state where they might bring financial stability risk. Because of the globalization of the financial markets, digital assets are directly affecting traditional financial systems and require regulation from global actors.

The urge to swiftly regulate the cryptocurrency market appeared after the infamous TerraUSD situation, during which investors lost billions of dollars because of UST’s depeg caused by flaws in the mechanism of the algorithmic stablecoin.

Previously, U.Today covered that the president of the European Central Bank, Christine Lagarde, expressed her views on the industry, calling it worthless and repeating her statement on Tuesday in Davos.

As for her reasoning, Lagarde told reporters that she only knows that cryptocurrency is volatile and “highly speculative” without diving into the fundamental problems of the industry, not describing any other problems except volatility.

Since the beginning of the year, Bitcoin has lost around 40% of its value and over 55% from its all-time high. Regulators are concerned with the volatile nature of the cryptocurrency and believe that it brings more risks than benefits to retail investors.