ECB New alarm on Bitcoin: "Cryptocurrency lending system" Scary

For the Central Bank, the financial risks associated with the spread of crypto assets can be amplified by financial leverage and crypto lending.

This is also why the Eurotower indicates the urgency of European rules. Meanwhile, the Binance platform gets the ok to operate in Italy. Read up more on Blog They are always up to date with the best insights

Bitcoin and other cryptocurrencies continue to occupy the center of the financial scene, including for the European Central Bank (ECB) .

This thus returns to the topic in the latest document “Financial stability review” , after the president, Christine Lagarde, thundered in recent days that “crypto assets are worth nothing”, calling for regulation.


In hindsight, the study just published by the ECB and signed by Lieven Hermans, Annalaura Ianiro, Urszula Kochanska, Veli-Matti Törmälehto, Anton van der Kraaij and Josep M. Vendrell Simón reaches the same conclusion. “Financial innovation – reads the summary of the document – comes to the same conclusion – the stellar volatility and growth seen in the cryptocurrency ecosystem show how important it is to better understand the potential risks that crypto assets pose to financial stability, if we continue on this trajectory.

Systemic risk increases along with the interconnections between crypto assets and traditional financial sectors, with the increase in the use of leverage and lending activities “.

For this reason, “closing the existing gap in the crypto asset ecosystem in terms of regulation and data is important to mitigate these systemic risks”. a) Market capitalization of cryptocurrencies b) Appreciation of bitcoin and ether since March 2020 compared to the main assets, in terms of market capitalization

Sources: Bloomberg Finance LP, Crypto Compare and ECB calculations

  • a) Market capitalization of cryptocurrencies
  • b) Appreciation of bitcoin and ether since March 2020 compared to the main assets, in terms of market capitalization

The wave of sales that hit the stock markets in the last month has also been discharged on Bitcoin and other cryptocurrencies. And this, the analysis reads, suggests that “the crypto asset market has become more tied to that of traditional risk assets”.

Moreover, “the interconnections with the financial system are growing”. Just think of the “payment networks that also offer crypto asset services” or the large institutional investors such as funds and family offices that, increasingly, “today invest in Bitcoin” as well as in other cryptocurrencies. The financial risks associated with the spread of digital currencies can be amplified by a whole series of growing elements on the market.

Among these, the increasingly widespread options offered by Bitcoin and other cryptocurrency platforms to increase one’s exposure through leverage, and in fact therefore through debt. “Some crypto exchanges – underlines the ECB study – allow you to increase your exposure up to 125 times compared to the initial investment”.

Luna’s 40 billion hole opens new cracks in stablecoins by Giovanni Pons 30 Maggio 2022 Then there is the phenomenon of the so-called “crypto lending” , which consists in a nutshell in borrowing money or cryptocurrencies providing cryptocurrencies as collateral. “Although the phenomenon is still limited, it is expanding” highlights the ECB analysis, adding that often, in this way, “investors can obtain higher interest rates on digital assets than on bank deposits”.

This type of service, the study continues, “is offered by both centralized and decentralized suppliers and often occurs without supervision and controls”. In this regard, it should be remembered that he defines himself as Defi(a term that stands for decentralized finance, decentralized finance) that vast set of financial services offered starting from the technology of the blockchain, in fact a register that allows you to keep track of transactions.

And among the strategies that have spread with crypto lending, the analysis indicates the one according to which an investor is incentivized precisely by more attractive rates to lend their cryptocurrencies “to a pool that helps provide liquidity to the Defi systems”.

Also for these reasons, cryptocurrency loans have passed and are being examined by the various competent authorities. For example, in the United States, the SEC, a counterpart of our Consob, fined BlockFi 100 million dollars for not having correctly registered the offers and sales of its crypto lending services, as required by American law.

“Although such cases are still unknown in the EU – reads the ECB document – the Defi platforms that reproduce traditional financial services would do better to ensure that they operate in compliance with current European regulations, to avoid the risk of legal disputes”. In the background, the regulation of the crypto asset market (Mica regulation) being studied by the EU, which according to the analysis should be “urgently approved to ensure that it can be applied sooner rather than later”.

Changpeng Zhao relaunches Binance in Italy:

“In crypto so much speculation, the rules are now needed” by Filippo Santelli 11 Maggio 2022 Meanwhile, some individual Member States have already taken action by introducing regulatory systems for the sector at national level.

In Italy, for example, the cryptocurrency registry has recently become operational . Binance, one of the world’s giants in the sector, announced that it had obtained registration on 27 May.

This registration, explained a note, “will allow the company to offer crypto products to Italian customers and is concrete evidence of the importance for Binance to operate in compliance with local cryptocurrency regulations.

It also represents an important piece of the strategy. of growth of Binance in Italy, which will allow the company to strengthen its presence in our country by opening offices and expanding the team of professionals active in the area “.