Crypto contagion risk is low today, but a European watchdog is keen to keep it that way.

A new report from the European Systemic Risk Board (ESRB) found that the industry’s economic impact is minimal, but recommends policy options that would allow EU bodies to better monitor the crypto sector and mitigate any risks.

Among other suggestions, such as actively monitoring contagion and education, the ESRB also highlighted the importance of monitoring leveraged trading in the crypto industry.

“Leverage in the crypto-asset world is only a problem if there are connections with the traditional financial system—something that needs to be monitored,” it read.

Assessing the state of crypto trading in Europe today, the European watchdog’s report also suggests that “coordination and cooperation” between Europe and countries abroad is crucial to ensuring that this economic impact does indeed stay low. This is due to the “cross-border nature” of cryptocurrencies, said the ESRB.

It’s expected to generate further discussion around the matter, specifically how to ensure that the risks related to the interconnection of crypto and traditional finance remain low.

“The approach should be to further monitor the situation and not implement strict policies preemptively, in particular as the risk for banks from direct exposure to crypto-assets has already been limited by the Basel Committee’s mandate that crypto-assets other than tokenized RWAs and

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Author: Paul Krantz

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