The European Central Bank (ECB) stated that unbacked crypto-assets pose a risk to financial stability.
The bank said it conducted “a deep dive into crypto-asset leverage and crypto lending” and discovered evidence that these operations were becoming more dangerous, sophisticated, and intertwined with traditional institutions. This was disclosed by ECB president, Christine Lagarde, according to Financial Times.
The market is being scrutinized more closely by central banks and governments. In Nigeria, the Securities and Exchange Commission issued cryptocurrency regulations, while the Central Bank of Nigeria has had an exciting prohibition on banks facilitating transactions.
The European Central Bank said“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. However, at this rate, a point will be reached where unbacked cryptoassets represent a risk to financial stability.”
The ECB is developing a digital euro and plans to test a prototype next year before choosing whether to introduce it three years later. Lagarde said its own central bank-backed digital currency would be “vastly different to many of those things”.
The EU is finalising legislation, called markets in crypto assets, but the ECB said it would not come into force until 2024 at the earliest. “Given the speed of crypto developments and the increasing risks, it is important to bring cryptoassets into the regulatory perimeter and under supervision as a matter of urgency,” it said.