The European Securities and Markets Authority (ESMA) has warned that crypto-assets could increasingly pose risks to the stability of traditional financial markets as the sector continues to expand and draw closer ties with established financial institutions.

Speaking before the European Parliament's Economic and Monetary Affairs Committee on Tuesday, ESMA Executive Director Natasha Cazenave outlined how the crypto industry’s rapid growth and heightened volatility continue to raise concerns for investors and policymakers alike. While the total market capitalization of crypto assets more than doubled in 2024 to €3.3 trillion, she noted that this growth has not come without serious risks.

“Despite new regulations, there is no such thing as a safe crypto-asset,” Cazenave said, citing recent events such as the massive surge and subsequent drop in asset prices, and a high-profile cyberattack on crypto exchange Bybit in February that resulted in losses exceeding $1.4 billion. The attack, allegedly linked to North Korean hackers, marked one of the largest crypto breaches to date.

The crypto market’s explosive gains in 2024 — including Bitcoin reaching an all-time high of $100,000 — were followed by a sharp decline in early 2025. According to Cazenave, these fluctuations were influenced by weakening macroeconomic conditions, shifting investor sentiment, and major security incidents. ESMA issued a renewed warning to investors in December 2024, urging caution amid renewed hype in the space.

While crypto’s market cap remains small relative to global financial assets — currently around 1% — ESMA is increasingly concerned about the growing connections between the crypto ecosystem and traditional finance. Investment products like crypto-focused exchange-traded funds (ETFs), especially those approved in the United States, have drawn substantial inflows. As of March 2025, U.S.-based spot Bitcoin ETFs had attracted approximately €34 billion in net inflows.

Some pension funds in the U.S. and elsewhere have begun building positions in crypto through funds and derivatives, signaling a shift in institutional sentiment. ESMA warned that, should such exposure become widespread, any future sharp downturn in crypto prices could lead to broader financial consequences.

Stablecoins — a type of crypto asset typically pegged to fiat currencies — also remain on ESMA’s radar. Although still a relatively small segment of the market, currently accounting for around €210 billion, regulators are watching for signs of rapid growth, especially in the absence of globally harmonized rules. Many stablecoins are backed by traditional financial assets, and a sudden wave of redemptions could trigger forced sales that impact broader markets, particularly if those assets lack sufficient liquidity.

To mitigate some of these risks, the EU’s Markets in Crypto-Assets (MiCA) regulation is being rolled out. It imposes prudential and governance requirements on crypto firms and stablecoin issuers, including rules for reserve management and transparency. ESMA has already instructed service providers to halt activity related to non-compliant stablecoins, prompting several major exchanges — including Binance, Crypto.com, and Coinbase — to delist popular tokens like USDT and DAI in the European Economic Area.

Cazenave emphasized that while MiCA is a major step forward, ongoing updates may be necessary to keep pace with the fast-moving nature of the crypto industry. She also called for continued international cooperation to ensure regulatory consistency and protect financial stability on a global scale.

“Crypto markets evolve quickly and often unpredictably,” she said. “MiCA is a breakthrough, but it may require future adjustments to address emerging risks.”

Despite crypto’s still-limited integration into the real economy and financial services, ESMA stressed the importance of vigilance. Most EU banks remain largely uninvolved in crypto activities, but the agency is concerned that turbulence in the sector — particularly under current geopolitical and economic conditions — could become a flashpoint.

In closing, Cazenave warned that even relatively small markets, like crypto, can trigger broader disruption in times of heightened financial stress. “Thorough risk monitoring and preparedness for crisis situations is the order of the day,” she told the Committee.

As the EU continues to implement MiCA and refine its oversight of digital assets, ESMA’s message is clear: crypto remains a dynamic and volatile sector that warrants ongoing scrutiny to avoid potential systemic shocks.