The European Central Bank (ECB) believes that crypto assets pose no threat to the financial stability to the euro. In a paper looking at the implications of cryptos on the financial system, the organization stated that the risks posed by cryptos to monetary policy and payments infrastructure are “limited and manageable.”
Cryptos don’t fulfill the functions of money in their current state, the ECB stated, and “neither do they entail a tangible impact on the real economy.” The proof is the low number of merchants that accept Bitcoin Core (BTC) for payments. There are a few reasons behind this, the regulator believes. They include the absence of a central bank backing and the high price volatility.
The report further claimed that if the crypto industry was to go up in flames, a majority of the losses would be very concentrated among some very few individuals. The top 1,000 BTC addresses represent 36% of all BTC holdings, the report claimed. This proves that while there are millions of addresses, a small number of people still control a majority of the BTC in circulation.
And while they don’t currently pose a serious threat to the monetary system, authorities need to keep monitoring this asset class constantly, the report advised. With the rise of stablecoins, the crypto industry is solving the challenge of price volatility. This could make cryptos appealing to a wider market, making them necessary to monitor for authorities.
The key areas where authorities need to be most vigilant with cryptos are their use in money laundering and financing terrorist activities. Currently, the only regulation in place to prevent this is the fifth Anti Money Laundering Directive (AMLD5). It dictates the measures that must be undertaken by service providers in the crypto industry to prevent their use in money laundering.
The paper comes at a time when European countries have stepped up efforts to regulate blockchain technology and cryptos. France and Germany have been some of the big economies that strived to bring in regulatory measures. The European Securities Markets Authorities has also urged European nations to adopt crypto-friendly rules as the new asset class is here to empower investors, not hinder them.
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