European financial supervisors warn that the rising valuations of crypto-asset, driven by expectations of the American deregulation under President Donald Trump, can pose a growing threat to global financial stability.
The Mixed Committee of the European Supervision Authorities (ESAs) has increased the alarm in its risk update for the spring of 2025, which emphasizes the destabilizing impact of geopolitical fragmentation, American policy security and volatility of the digital assets market.
The Commission includes the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA).
The report noted that “recent record -high crypto evaluation and volatility in the context of increasing mutual connections with traditional financial markets” are a growing challenge for financial stability.
Although it was not mentioned by President Donald Trump by name, the ESAs explicitly tied the increase in crypto prices to political expectations.
According to the report:
“Crypto: volatile crypto-asset valuations, powered by expectations of the American deregulating policy agenda; enlargent mutual connections with traditional financial markets.”
Deepening of volatility exposure
According to the ESAs, 77% of the EU sharing fund flows (exclusive ETFs) in the past five years focused on US stock ownership, to illustrate the heavy exposure of the block to the American markets.
Insurers and pension funds also enforce important allocations outside the European Economic Environment, with 6% to 17% of their assets concentrated in the US, depending on the sector. This rising cross -border exposure comes in the midst of increased market valuations and growing leverage in alternative investment funds.
The report warned that these conditions, in combination with crypto speculation, “can create risks of shocks for funds with a liquidity mass match.” The supervisors emphasized the risk of disproportionate market reactions in view of the macro background.
The report stated:
“Risk of disproportionate reactions to surprises given recent record -high US stock valuations and historically low EU distribution of corporate bonds.”
It also suggested that volatility caused by policy relationships could have raised wrinkle effects on activa classes.
Freagmented supervision, systemic vulnerabilities
The joint committee warned that the growing divergence between jurisdictions, in particular, if large economies are alleviating the regulations, while others sharpen, financial coordination can continue.
The report has also brought the double threat of AI adoption and cyber risks to the attention, both escalating in the financial sector. The ESAs warned that the rescheduling of geopolitical relationships “could further increase cyber risks in the EU.”
The ESAs called on financial institutions to include crypto-related risks in their scenario analysis and to stay alert on policy-driven market shifts. The report advised institutions to “be ready for risks” and emphasized the need for sufficient facilities, recovery plans and reinforced risk frames.
Although the EU has continued with its own regime regime for Crypto by the markets in the regulation of crypto-assets (MICA), officials are increasingly concerned that a deregulent push in the US could create efforts and create arbitration options that destabilize markets.
The ESAS concluded that vigilance is crucial as the crypto sector grows in size and influence and warned that the market could possibly get increased volatility if the geopolitical uncertainty continues to exist.
