EU watchdog calls for curbing leverage in crypto trading
The European Systemic Risk Board issued many proposals, ranging from requiring frequent reporting from all companies working with crypto assets to instituting particular guidelines for the largest enterprises in that field
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The European Union should prohibit leveraged bets on crypto assets by imposing rules on investment funds, exchanges, and other enterprises to prevent shocks in that market from jeopardising financial stability elsewhere, according to an EU watchdog on Thursday.
The European Systemic Risk Board issued many proposals, ranging from requiring frequent reporting from all companies working with crypto assets to instituting particular guidelines for the largest enterprises in that field.
It comes after a rollercoaster 18 months in which the price of bitcoin fell as much as 77 per cent, the cryptocurrency Luna crashed, and exchange FTX went from buying Super Bowl advertisements to declaring bankruptcy.
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“Systemic risks could arise quickly and suddenly,” the ESRB said in a report. “If the rapid growth trends observed in recent years were to continue, crypto-assets could pose risks to financial stability.”
In a proposed change from recently passed EU regulation, the ESRB proposed “introducing leverage limits for investment funds exposed to crypto-assets”.
It also called for limiting crypto firms’ ability to lend tokens to their clients, which is one way of making leveraged bets, and for setting higher collateral requirements for distributed finance products and stablecoins.
The ESRB’s recommendations are not binding but they are likely to inform the EU’s future work on new versions of its markets in cryptoassets regulation (MiCA).
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