Crypto Is ‘Risky’ yet Adoption in Europe Is Increasing Says ECB

The European Central Bank (ECB) has released a report on the financial stability risks of the crypto market, revealing that 10% of households may own cryptocurrencies.

The report confirms that growing retail and institutional interest has put crypto on its radar, leading to the research being published.

Around 6% of crypto owners confirmed that they held more than $32,000 worth of assets. As with the Federal Reserve Bureau report published recently, the higher the household income, the more likely it is that it owns crypto. 

However, lower-income households are more likely to hold crypto than middle-income households.

Crypto-assets are highly risky.

Yet interest in them has grown, with connections with the finance industry increasing. If this continues, crypto-assets will pose a risk to financial stability.

Read why in a preview of our Financial Stability Review https://t.co/rsXBfRdkRN pic.twitter.com/TER0hr2hWp

— European Central Bank (@ecb) May 24, 2022

The authors say that the “stellar growth, volatility and financial innovation” are good reasons to assess the risks of the crypto market on financial stability. 

ECB attitude to risk is changing

In the past, the ECB had seen the risks of cryptocurrencies on financial stability as limited, but development such as decentralized finance (DeFi) has changed that opinion.

It highlights stablecoins, which concern many, and the recent TerraUSD crash as examples of kinds of risks. Stablecoins are among the biggest worries for regulators, and all major economies are working on ways to tackle their implementation.

Crypto presence grows despite crash

As crypto becomes more closely integrated with the global economy, those risks may have some justification. At one point, the crypto market was considered a good hedge against the risks of other markets, but that belief seems to be disappearing. The crypto market tanked alongside others during the recent crash.

Some countries are going all in and making bitcoin legal tender. This has further irked global bodies like the International Monetary Fund (IMF), claiming adoption could pose risks.

Other countries are finding some middle ground, allowing crypto and blockchain tech to function in some way, but not going so far as to make it legal tender. 

As crypto edges towards mass adoption, the scrutiny will only increase, leading to more involvement from bodies like the ECB.