Crypto leverage is only a problem when it affects traditional finance: EU Watchdog

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The risk of crypto contagion 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 economic impact of the industry is minimal, but recommends policy options that would allow EU bodies to better monitor the crypto sector and mitigate risks.

Among other suggestions, such as active monitoring for 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 to the traditional financial system, which needs to be monitored, it reads.

Daniel Weber, Directorate General for Communications at the European Central Bank, told Decrypt that the most important takeaway is that, until now, the impact of cryptos on financial systems has been limited, due to only a few connections. However, this could change as the sector is growing and highly volatile. It therefore needs to be watched closely.”

Assessing the current state of the crypto trade in Europe, the European Watchdog report also suggests that coordination and cooperation between Europe and foreign countries is key to ensuring that this economic impact remains effectively low. This is due to the cross-border nature of cryptocurrencies, the ESRB said.

“The report is intended to inform ongoing debates and provide suggestions on how to improve surveillance and risk assessment in the future,” Weber said, adding that it could also contribute to future review of the disease. MiCA by the European Commission.

This report comes just over a month after the European Parliament adopted the Crypto Asset Markets (MiCA), which establishes a unified standard for the regulation of crypto assets across EU member states.

EU regulators are keeping a close eye on the crypto and DeFi markets after a turbulent period for the industry.

Over the past 18 months, a bear market has sent the price of Bitcoin down 77%, lead developer Luna was arrested in Montenegro for fraud, and the implosion of FTX has caused a crisis of faith among many investors and clients.

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