EU Regulator Calls for Curbing Crypto Asset Trading Leverage

EU authorities should curb leverage in crypto assets by introducing restrictions on investment funds, exchanges, and other companies to prevent a shock wave in the sector from jeopardizing financial stability in other markets, an EU regulator said Thursday.

That was one of several recommendations put forward by the European Systemic Risk Board (ESRB), which includes requiring regular reports from all companies involved in cryptoassets and also introducing specific rules for the biggest companies in the sector.

The price of bitcoin fell about 77 percent after 18 months of turmoil in the cryptocurrency industry, during which Luna coin collapsed and FTX, an exchange that had bought ads for the Super Bowl, went into bankruptcy.

"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 response to a proposed change in the recently adopted EU cryptocurrency regulations, the ESRB proposed "introducing leverage limits for investment funds exposed to crypto-assets."

It also calls for limiting the ability of crypto firms to lend tokens to their customers as a way to make leveraged bets, and for setting higher collateral requirements for distributed financial products and stablecoins.

The ESRB's recommendations are not binding, but may inform the EU's future work on a new version of cryptoassets regulation (MiCA).

(Source: Reuters)