A financial stability report published by the European Central Bank last week indicates that risks to financial institutions from crypto assets “appear limited.”
The mention of crypto assets was included in the May 19 report and published on the ECB’s website. “Signs of exuberance have also been observed in the renewed interest in crypto-assets, although financial stability risks appear limited,” the report’s authors note.
The report goes on to note in full:
“The surge in bitcoin prices has eclipsed previous financial bubbles like the “tulip mania” and the South Sea Bubble in the 1600s and 1700s. While this has largely been driven by retail investors, some institutional investors and non-financial corporations are also demonstrating a growing interest. Its price volatility makes bitcoin risky and speculative, while its exorbitant carbon footprint and potential use for illicit purposes are grounds for concern. Crypto-assets are still not used widely for payments, and euro area institutions have little exposure to crypto-linked financial instruments, so financial stability risks appear limited at present.”
Last year, leaders in the European Union kicked off the process to develop a new regulatory framework for crypto assets and stablecoins. Work in the European Parliament on the proposed legislation appears ongoing, according to public documents indicating that party-level meetings continue to take place on the issue.
European governments are also weighing the potential launch of a digitized version of the euro, with discussions among national leaders, the European Union and the ECB still ongoing.