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EU seeks to limit leverage bets in crypto

EU seeks to limit leverage bets in crypto

In a recent announcement, an EU watchdog emphasised the need for measures to prevent excessive leveraged bets on crypto assets.

The European Systemic Risk Board (ESRB) has made a range of recommendations with which to address the challenges faced by the crypto sector. Among the proposed actions, the ESRB suggested implementing stringent regulations such as mandatory regular reports from all companies involved in crypto assets. Additionally, it highlighted the necessity of specific rules tailored to the largest firms operating within this space.

The cryptocurrency industry has experienced a rollercoaster ride over the past 18 months, marked by significant fluctuations in the price of Bitcoin and with the collapse of various crypto institutions.

Highlighting the potential rapid emergence of systemic risks, the ESRB stressed the urgency of addressing these issues. As highlighted in a Reuters article earlier today, the report cautioned that if the industry’s exponential growth trajectory persists, crypto-assets could pose a threat to financial stability.

Proposing an amendment to existing EU regulations, the ESRB recommended the introduction of leverage limits for investment funds exposed to crypto-assets. By curbing the extent of leverage employed, the aim is to mitigate the potential risks associated with highly leveraged bets.

Furthermore, the ESRB called for higher collateral requirements for distributed finance products and stablecoins, further bolstering risk management within the crypto space.

While these recommendations are not legally binding, they hold significant weight and are expected to influence the EU’s future endeavours in refining its regulatory framework for crypto assets. As the EU revisits its markets in cryptoassets regulation (MiCA), it is likely to take these suggestions into serious consideration.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.