The ESRB recommended a ban on lending to customers of crypto firms, specifically for leveraged bets, and suggested higher collateral requirements for distributed finance products and stable coins.
On Thursday, May 25, an EU watchdog – the European Systemic Risk Board – recommended that European authorities should curb leveraged bets on digital assets by introducing limits for investment funds and exchanges. Over the past few years, with the increasing number of market participants, crypto trading is becoming increasingly popular among retail investors. As a result, leveraged bets have been in high demand. EU watchdogs want to prevent shocks in the crypto industry due to leveraged bets and prevent further risks to financial stability.
The European Systemic Risk Board (ESRB) has made some recommendations, demanding regular reports from companies involved in the crypto sector, as well as introducing specific regulations for some of the biggest players in the space. In its reports Accessed by Reuters, the ESRB noted:
“Systemic risks can arise quickly and suddenly. If the rapid growth trends seen in recent years continue, crypto-assets could pose a risk to financial stability.”
The development comes at a time when regulators around the world are taking measures to protect the interests of investors in the crypto space. The past 18 months have been absolutely tumultuous for the crypto industry, marred by high-profile scandals and bankruptcies.
During the crypto winter of 2022, Bitcoin The prices have dropped by more than 70%, draining investors of their money. In addition, major events such as the Terra ecosystem crash and ftx The exchange crash wiped out billions of dollars of investors’ money.
Edit MiCA Framework
Earlier this month, in a landmark decision, the European Union pass The much anticipated Market in Crypto Assets (MiCA) legislation. MiCA has been adopted by the member states of the European Union and the European Parliament. Under the MiCA legislative framework, cryptocurrency businesses must obtain EU authorization to serve customers in the European Union. They must comply with safeguards against money laundering and the financing of extremist organizations.
Thus, the ESRB has proposed changes to a recently passed EU regulation to “introduce leverage limits for investment funds with exposure to crypto-assets”. These recommendations of the ESRB are not binding but are proposed for consideration in future work of the EU and new editions of MICA.
The ESRB recommended a ban on lending to customers of crypto firms, specifically for leveraged bets, and suggested higher collateral requirements for distributed finance products and stable coins.
Bhushan is a Fintech enthusiast and has a great understanding of understanding the financial markets. His interest in economics and finance drew his attention to the newly emerging blockchain technology and cryptocurrency markets. He is in the process of continuous learning and keeps motivating himself by sharing his acquired knowledge. In his spare time he reads thriller fiction novels and occasionally explores his culinary skills.
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