ECB Warns Crypto Risks Could Affect Wider Economy

The European Central Bank (ECB) emphasized in a report Tuesday, that it is essential to regulate the frequently changing crypto space as it is posing a greater risk towards investors. 

"Given the speed of crypto developments and the increasing risks, it is important to bring crypto-assets into the regulatory perimeter and under supervision as a matter of urgency," the ECB said.

With more financial institutions engaging with crypto and digital assets as a whole, the ECB warned that there is an increase in potential “spillover into the wider economy.” The ECB notes that cryptocurrencies and digital assets lack “internal shock absorbers that could provide liquidity at times of stress.” They name this as one of the main reasons a spillover into the greater economy could be damaging and dangerous. 

In response to this, the European Union (EU) is currently putting together legislation to regulate cryptocurrencies called the Markets in Crypto-Assets (MiCA) Regulation. This regulation was initially proposed in September 2020, but has not been agreed on by EU co-legislators. Therefore, regulation will not be applied earlier than 2024, and could even be pushed back to 2026. 

With a field that changes rapidly and constantly, the ECB is fearful that the risks of crypto could potentially harm the lives of many people. Take Terra’s algorithmic stablecoin, TerraUSD (UST) for example. UST dropped off a cliff on May 9, going from its $1-peg, to less than $0.10 in the matter of a few days, according to Bitpush Terminal data. In addition, the other native coin on the Terra network, went from an all-time high of $118 on April 5, to a price less than one penny. 

That catastrophic event in crypto history has damaged and hurt the lives of many people. Even people on Twitter were calling for the founder of the project, Do Kwon, to be put in jail as he significantly hurt the lives of many people that invested in his project. 

This report also mimics the U.S. Treasury Secretary Janet Yellen's attitude toward crypto. On a May 10 Senate banking hearing, Yellen called for legislation on crypto by the end of the year, citing UST’s collapse as more evidence for doing so. 

Author: Tyler Irvin

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