EU Regulator Issues Warning About Crypto

ByEdward Thompson

Jul 11, 2022

Verena Ross, the chairman of the European Securities and Markets Authority (ESMA) said that investors should learn a lesson from the crash that had recently occurred in the crypto market. She said that the real question that needs to be asked is whether crypto assets will be able to survive in the long term.

ESMA chair speaks up

While 2021 was a spectacular year for the cryptocurrency market, the same cannot be said for 2022. Almost 70% of its total market value has been wiped out so far and this prompted the ESMA’s chair, Verena Ross to caution those investing in the crypto space.

She said that out-of-pocket crypto investors should be aware that there is no possibility of a European bailout in these investments. She said that they had already issued a warning earning this year to retail investors about the serious risks associated with investments in crypto assets.

Licensing of crypto asset providers

In accordance with the recent agreement made in Brussels for the Markets in Crypto Assets (MiCA) proposal, the ESMA will have the responsibility of issuing licenses to the crypto asset providers in Europe. This proposal will come into effect from mid-2023 and an implementation period of 18 months has been provided.

The regulatory authority will also have the power of restricting and banning crypto platforms if they are unable to provide adequate protection to investors, or are a risk to financial stability, or market integrity.

Ross was also concerned about the losses that small investors would suffer, as she cited that the crypto market has lost about 70% value in the last year alone. The TerraUSD (UST) stablecoin and the LUNA token crashed in May and wiped out many investors from the crypto market.

She said that the important question to ask at this point was whether many of these crypto assets would be able to survive in the market, or not.

ESMA and SEC in agreement

A similar warning had also been issued by Gary Gensler, the chairman of the Securities and Exchange Commission (SEC) in the US. After the collapse of the UST and LUNA tokens, he had also asserted that a number of crypto tokens would not be able to live through the crypto winter.

The ESMA chair added that she hoped many investors would consider the condition of the crypto space as a cautionary lesson and think before they decide how much money to invest in crypto assets. A warning had also been issued back in March by ESMA as well as other European regulators about the highly speculative and risky nature of crypto assets.

They also noted that investors could lose all their funds if they decide to invest in these assets. Ross asserted that they had already mentioned that the crypto space is unregulated and they do not have any control over the service providers. She added that they were aware of aggressive marketing and fraud happening in the market.

Christine Lagarde, the European Central Bank (ECB) president, had also warned last month that crypto and DeFi could put financial stability at risk.

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