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- The European Securities and Markets Authority (ESMA) has published a report, on March 17, detailing current financial trends, vulnerabilities, and risks.
- Digital innovations and crypto-assets take center stage in the newly published report.
- It also focuses on the impact of the COVID-19 pandemic and the financial world’s conceivable subsequent courses of action.
ESMA has outlined several factors that have the most probability of directly affecting financial systems in the European continent in a 119-page comprehensive publication . As the global economic climate is more or less the same following the COVID-19 pandemic, the report can also be extrapolated for global considerations.
Cryptographic assets have taken the spotlight, and here’s why.
Crypto assets reach dizzying heights attracting ESMA
The report concedes the well-known fact that cryptocurrencies were on a roll in the past few months and, as a result, have reached record valuations. The year 2018 was the last time tokens were hyped about and consequently saw a decent stock market run. This year’s prices have already surpassed 2018 levels by about 50%, even as the first quarter is yet to close. This is largely due to positively reinforcing news-flows surrounding the phenomenon, which includes PayPal and MasterCard’s decisions to integrate cryptos into their respective networks and huge investments by private firms such as Tesla and MicroStrategy.
One can argue that the rise of decentralized finance (DeFi) products has caused the successful exploitation of blockchain to enable complex financial transactions. Ethereum is a prime example where barter rules are governed by means of smart contracts. The rise of DeFi can also be partly attributed to the pandemic, which caused the general public to distrust fiat currencies and turning towards Bitcoins for secured long-term savings. Too, governments all over the world are progressing at different levels to bring about a centralized digital legal tender for their respective nations.
Cryptos have drawbacks like all good things
The drawbacks of crypto in the current scenario cannot be overlooked. The report states that such a meteoric rise in prices, having seldom been seen before, may also be a distinct characteristic of a market ‘bubble’, and as such, it may be poised to burst. This may lead to crypto owners losing almost all of their investments. As crypto regulations often lie in a legal void, extreme market volatility is a likely characteristic that may lead to panic. Stablecoins may offer some kind of relative protection. However, they are too small in size and market cap to make any significant contributions. Like all good things, cryptographic assets may also be poised to ebb away.
In short, the report concedes the major role of cryptos in the current scenario yet urges extreme caution for investors to protect themselves from risks.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
