A cryptocurrency collapse infection can easily manifest itself in the financial system

Christine Lagarde, President of the European Central Bank, warned on Thursday that while traditional financial market contagion due to the “crash” of digital currencies remains “low,” no one should let their guard down given the interdependence of the two. Systems can increase risks at any time.

🇧🇷After peaking in November 2021, the bitcoin price has fallen by nearly 75% in the space of a year. Last month we witnessed the chaotic collapse of FTX,” he said, starting with references to the French leader.

“Although the impact of these events has so far been contained, systemic risks could easily emerge as the interdependence between the cryptocurrency ecosystem and the traditional financial system increases,” the ECB President emphasized at the opening of the 6th European Systemic Risk Conference. board. Lagarde’s comments come after several ECB officials, including Italian Governor Fabio Panetta, warned of the dangers of crypto assets and the potential for this market to be a “bubble”.

“Policy makers, including macroprudential authorities, must assess whether and how the cryptocurrency ecosystem should be regulated,” considers Lagarde, highlighting the “avant-garde” role of Europe which is in the final stages of the legislative process for asset regulation. encoded (in English abbreviation MiCA).

The official believes that the rapid implementation of MiCA is necessary to “fill the gaps, so that a stable structure is provided for the issuance of crypto assets and the provision of services in the European Union.”

However, the regulation now in place “is only the first step,” he notes. “From the point of view of financial stability, regulation can be strengthened in several dimensions,” says the former French Finance Minister.

The European Central Bank chief stressed the need for regulation to “address interdependence risks”. [entre ecossistema cripto e sistema financeiro tradicional]through exposure of financial institutions to crypto assets.”

Lagarde did not forget about decentralized finance (DeFi) and crypto-secured lending, which are still outside MiCA, and reminded that such supervision must be “accompanied by clarity in the regulation of lending and mortgage activities.”

Banks must secure provisions
However, the crypto ecosystem is not the only risk to European finance. Lagarde also took advantage of her speech to talk about the impact of the “weak economic outlook” on banks and left an appeal.

“It remains important for banks to secure adequate provisions and plan prudently [a gestão] out of its own money,” said the ECB president.

He added that banks “should be aware of credit risks and remain alert to the possibility of internal models failing as the risk environment grows.”

(News updated at 12:59).