EU regulators see encryption as a sign of increased risk taking in the current climate

The European Securities and Markets Authority (ESMA) issued report Trends, risks and vulnerabilities of the EU market in the first half of 2021 (1H21).

As proposed by the European Commission, the main points include the following arguments: The abnormal volatility and growth of the crypto market convincingly proves the need for a targeted regulatory system Crypto asset market supervision.

Under the continuing influence of the COVID-19 pandemic, the European Union and the global market played a significant role in the recovery in the first half of 21 years. The ESMA report pointed out that the overall economic outlook continues to improve, and it is now expected that the European economy will reach its pre-pandemic output by the end of 2022, earlier than expected.

The relaxation of public health restrictions, the reduction of uncertainty, and the central bank’s enthusiasm in providing supportive monetary policy have promoted this recovery. When talking about the medium-term risks of the current climate, ESMA regards the cryptocurrency market as an indicator of market sentiment and dynamics in the past six months:

“With the increase in trading volume, the rising valuations of various asset classes, the large volatility of crypto asset prices, and the event-driven risks observed in the first half of 2016 have raised questions about the increase in risk-taking behavior and possible market prosperity.”

In ESMA’s view, this boom is already Game stop saga And the widespread rise of retail transactions promoted by social media, and the sharp rise in the price of encrypted assets in the first quarter of this year. The report emphasizes that most of the growth in trading activities has occurred outside the scope of EU regulation, triggering investor protection issues.

ESMA attributed the rise in consumer confidence during this period to a series of factors, including innovative business models and the gamification of online and mobile trading platforms. Along with the boom in retail transactions, ESMA is also paying close attention to decentralized finance (DeFi), and pointed out that the 47 billion euros (55.3 billion US dollars) locked in DeFi at the beginning of September has fallen from the high point in mid-May, but has increased 1,200% from the end of July 2020.

ESMA recognizes the benefits of DeFi, including disintermediation, 24/7 availability, and censorship resistance, and pointed out that the increasing use of stablecoins and central bank digital currencies may cause the boundaries between traditional finance and DeFi to follow The passage of time becomes more fragile. However, especially due to the enthusiasm of institutional investors, ESMA believes that the possibility of DeFi risks spreading to the real economy is increasing, even though the market is still small.

related: EU securities regulator warns of the risks of “unregulated” cryptocurrencies

The report also pointed out that institutional investors are beginning to consider Bitcoin (Bitcoin) The environmental impact of ESG goals, which has prompted people to become more and more interested in Ether (Ethereum).beside Its environmental qualification, ESMA attributes ETH’s success to its Smart contract function, DeFi boom and the role of blockchain in the irreplaceable token ecosystem.

The regulator’s assessment was responded to by the CEO of Pantera Capital Dan Morehead, He believes this summer that the upgrade of the blockchain may help Ethereum to outflank Bitcoin and become the largest cryptocurrency.