European financial regulators have warned that increasing valuations of crypto assets could pose a threat to global financial stability, based on US deregulation expectations under President Donald Trump.
The European Supervisory Authority (ESAS) joint committee issued an alarm in the Spring 2025 risk update, highlighting the volatility of geopolitical fragmentation, US policy uncertainty and the volatility of digital asset markets.
The committee includes the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Labor Pensions Authority (EIOPA).
The report states that “recent record high crypto ratings and volatility in the context of increasing interconnection to traditional financial markets” poses an increasing challenge to financial stability.
Although President Donald Trump did not mention it by name, the ESA explicitly linked the surge in crypto prices to political expectations.
According to the report:
“Cryptocurrency: Evaluation of volatile crypto assets based on expectations for the US deregulation policy agenda. Increased interconnections to traditional financial markets.”
Deepen exposure to volatility
According to ESAS, 77% of EU equity fund flows (excluding ETFs) over the past five years have been directed towards US stockholdings, indicating a strong exposure to the bloc’s American market.
Insurance companies and pension funds also maintain important allocations outside the European economy, with 6% to 17% of their assets concentrated in the US, depending on the sector. This increased cross-border exposure comes amidst a growing market valuation and increased leverage of alternative investment funds.
The report warned that these conditions, combined with crypto speculation, could “substantial liquidity can pose a shocking risk to funds.” Regulators highlighted the risk of disproportionate market reactions, taking into account the macro context.
The report states:
“The risk of an unbalanced response to surprise given the recent record US stock valuation and historically low EU corporate bond spreads.”
They further suggested that volatility triggered by policy surprises could have a significant ripple effect across asset classes.
Fragmented surveillance, systematic vulnerability
The Joint Commission warned that increasing differences between jurisdictions could further erode financial adjustments, particularly if major economies become more stringent while others become more easing regulations.
The report also highlights the dual threat of AI adoption and cyber risk, both escalating in the financial sector. The ESA warned that a reorganization of geopolitical relations will “enhance the EU’s cyber risk.”
The ESA urged financial institutions to incorporate crypto-related risks into their scenario analysis and pay attention to policy-driven market shifts. The report advised agencies to be “risk ready” and highlighted the need for proper provisioning, recovery planning and strengthening risk frameworks.
The EU is advancing its own regulatory regime for cryptocurrencies through the market for cryptocurrency (MICA) regulated, but authorities are increasingly concerned that the push for deregulation in the US could undermine those efforts and create arbitrage opportunities that put the market at risk.
The ESA concluded that vigilance is important as the size and influence of the crypto sector grows, warning that markets could potentially face increased volatility if geopolitical uncertainty persists.
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