Despite praising digital assets as creative development, the European Securities and Markets Authority has labeled them “volatile.” 

The European Securities and Markets Authority (ESMA) released a study outlining its financial innovation scoreboard for 2021, which ranked digital currency and blockchain technologies first.

The paper, titled “Trends, Risks, and Vulnerabilities,” identified digital currency as a hot topic in finance, as well as a threat to financial services’ long-term viability because of its environmental impact, particularly concerning block reward mining.

The volatility of digital currency assets, the expansion of decentralized financial platforms, the upcoming debut of central bank digital currencies, and stablecoins were all potential threats.

“Most crypto assets (CAs) are highly volatile in price and operate outside of the existing EU regulatory framework, which raises investor protection issues,” stated in the report.

The research goes on to say that part of the reason for the increase in volatility is increased riskier activity in the equities and digital currency trading markets:

“Increased [risk-taking] behavior has led to volatility in equity (e.g., GameStop-related market movements) and crypto asset markets, as well as to the materialization of event-driven risks such as in the case of Archegos or Greensill.”

The European Securities and Markets Authority (ESMA) is an independent body responsible for managing securities regulation in the European Union. The agency is responsible for maintaining order in financial markets and protecting investors from fraud and scams.

Their yearly scoreboard examines financial services innovations, ranking them in order of apparent necessity for policy reaction or more investigation, as well as how they relate to the ESMA’s overarching goals.

With digital currency, digital assets, and blockchain technology at the top of the list, it appears that the sector will be scrutinized more closely by EU regulators.

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