The United States’ supportive approach to cryptocurrency could heighten risks within financial markets by further intertwining traditional finance (TradFi) with the digital asset ecosystem, as noted by a regulatory body in Europe.
“This welcoming attitude toward cryptocurrency may boost its adoption, especially among institutional investors,” a representative from the financial markets regulatory agency stated during a discussion. “This, in turn, would increase interlinkages, and without proper safeguards, could lead to harmful spillover effects between cryptocurrency and traditional financial markets.”
Since taking office on January 20, the new president has instructed his administration to establish a bitcoin reserve and promote crypto-friendly policies. The cryptocurrency market had already experienced a positive response following the president’s election win in November, with bitcoin (BTC) reaching an all-time high of approximately $109,000 on inauguration day, according to CoinDesk data.
In a joint report released on Monday, the regulatory authorities highlighted “fluctuating valuations of crypto-assets, influenced by expectations of U.S. deregulatory measures; increasing links to traditional financial markets,” as a significant factor impacting financial conditions.
Additionally, Piero Cipollone, a member of the executive board of the European Central Bank, emphasized the need for a digital euro—a Eurozone-supported digital alternative to crypto assets, which he labeled as “highly volatile and speculative.”
“Moreover, the U.S. initiative to uphold the dollar’s dominance globally through the promotion of stablecoins introduces its own challenges,” he remarked.