A task force formed by the European Central Bank (ECB) to study the growth of cryptocurrencies and its potential impact on the financial system released its May report, highlighting key developments in the emerging industry.
Among several other areas covered by the report, the ECB paper authors acknowledged that the cryptocurrency markets currently do not pose a threat to either the EU or global financial system.
The reason for reaching that conclusion is that the current market for cryptocurrencies had a market capitalization of €96 billion ($107 billion) in January 2019. It is pertinent to mention that the crypto market has more than doubled in value since that time, standing at over $250 billion at the time of writing.
The authors analyzed that when compared to the rest of the financial system, the crypto market cap represented just 4% of the popular FAANG stock and a mere 1% of the EU’s GDP. Despite the industry’s small fraction against the rest of the financial system, the ECB paper goes ahead to recommend that the EU pursues a unified regulatory course for the industry.
Series of “uncoordinated and inconsistent regulatory approaches undertaken at the country level may prove ineffective and create incentives for regulatory arbitrage,” a section of the paper warns.
Failure to adopt such an approach will result in a situation were regulations hamper “the resilience of the financial system to crypto-asset market-based shocks.”
Meanwhile, researchers at the European Central Bank are only one in a fleet of regional regulatory authorities that have sought insights regarding the cryptocurrency industry and its potential to disrupt the financial system.
In January, Stmarket.co reported that the European Banking Authority (EBA) as well as the European Securities and Markets Authority (ESMA) issued a report urging the European Commission to regulate the industry soon.