EU Regulator Warns Crypto Could Spark Future Financial Instability

European regulators are voicing fresh concerns about their potential impact on the traditional financial system. Natasha Cazenave, Executive Director at the European Securities and Markets Authority (ESMA), issued a stern warning on April 8, stating that crypto could pose a real threat to financial market stability if current trends continue unchecked.

Speaking to the Economic and Monetary Affairs Committee, Cazenave acknowledged that crypto assets currently represent just 1% of global financial holdings, making them too small to trigger widespread disruption—for now. 

But with increasing overlap between crypto and traditional finance, especially in more permissive regions like the United States, the landscape may shift quickly.

“Crypto-assets markets evolve quickly, in an often unpredictable manner,” Cazenave noted. “We need to keep a close eye on these developments.”

Her concerns are not abstract. Cazenave cited recent hacks and collapses, including the $1.4 billion Bybit exploit and the 2022 FTX collapse, as reminders of how crypto turmoil—even in isolated incidents—can send ripples through the broader economy.

MiCA Marks Progress

The European Union has taken a leading role in trying to preempt crypto-related shocks through regulation. Its flagship Markets in Crypto-Assets (MiCA) framework, introduced last year, aims to provide a legal backbone to the fast-evolving digital asset sector. Cazenave praised MiCA as a “breakthrough” but was quick to temper any optimism.

“There is no such thing as a safe crypto-asset,” she said, suggesting that further regulatory steps may be necessary to shield Europe from future financial contagion.

She highlighted risks tied to stablecoins, ETFs, and retail exposure, underscoring that retail adoption is on the rise across Europe. Estimates now suggest that 10% to 20% of European investors hold some digital assets—figures that match the 15–28% adoption rates seen in the U.S.

Europe Behind the Curve in Institutional Crypto Adoption

Despite growing retail interest, European banks remain hesitant, with over 95% of institutions still avoiding crypto involvement, according to ESMA data. Meanwhile, the U.S. continues to lead in terms of both product innovation and institutional integration.

Cazenave’s remarks come at a time when global markets are under pressure from macroeconomic strains, including rising tariffs under the Trump administration.