The search for higher yields amid rising inflation and falling interest rates, have led investors to take greater risks, exposing a broad section of the market, including crypto, vulnerable to corrections, the European Central Bank (ECB) said.
- The ECB acknowledged that cryptocurrencies have grown in popularity and relevance, and said that the crypto markets are subject to “speculative bouts of volatility.”
- The increasing use of leverage by crypto investors can lead to “large, concentrated losses,” the central bank said in its bi-yearly financial stability review, which was released on Wednesday.
- The ECB also warned against the growing link between Stablecoins, cryptocurrencies that are pegged to fiat currencies, and the traditional financial market.
- The central bank has been discussing the creation of a central bank digital currency (CBDC) since the start of this year, and in July said that it will move to a more investigative phase in 24 months.
- While earlier this month, Fabio Panetta, a member of ECB’s executive board, laid out a detailed roadmap for CBDC inclusion.