MiCA Alone Can’t Shield Europe From Crypto’s Contagion Risk, ESMA Warns

Key Takeaways

• The European Union’s top markets regulator warns that crypto volatility is rising, posing risks to investors and financial stability.
• ESMA says crypto’s impact on the global financial system remains limited for now.
• Stablecoins, while still relatively small, could trigger broader contagion if mismanaged.

As crypto markets continue to swing wildly, European regulators are sounding the alarm.

The European Securities and Markets Authority (ESMA) warned this week that surging volatility in digital assets is exposing growing vulnerabilities—both for retail investors and, eventually, the broader financial system.

While the immediate threat remains contained, the agency is urging caution.

ESMA Flags Crypto Structural Weaknesses

In a briefing to the European Parliament’s Economic and Monetary Affairs Committee, ESMA Executive Director Natasha Cazenave said the sector’s recent rollercoaster ride reflects deeper structural weaknesses.

“Despite MiCA, there is no such thing as a safe crypto-asset,” Cazenave told lawmakers, referring to the EU’s Markets in Crypto-Assets Regulation.

The crypto market doubled to €3.3 trillion in 2024 before retreating sharply in early 2025, shedding more than 20%.

Bitcoin (BTC) alone surged to an all-time high of $100,000 in December, only to be dragged lower by deteriorating sentiment and a string of high-profile incidents—including the $1.4 billion Bybit hack in February. 

Limited Systemic Risk—For Now

Despite the turbulence, ESMA maintains that crypto-assets still pose minimal systemic risk.

Crypto accounts for roughly 1% of global financial holdings, and more than 95%  of European banks maintain no crypto exposure at all.

That limited footprint has so far prevented a major fallout.

Still, the regulator flagged growing institutional interest—including $94 billion in inflows into U.S.-listed Bitcoin ETFs since January—as a trend worth monitoring.

“If exposures become significant, future price shocks could ripple into the financial system,” ESMA noted, referencing past crises like the FTX collapse that erased 30% of crypto market value in two weeks.

Stablecoins in the Crosshairs

Stablecoins — widely used as digital cash equivalents — remain relatively small, but ESMA warned that they could pose contagion risks if left unchecked.

Many are backed by traditional financial assets, meaning a sudden run could force large-scale asset sales and trigger market dislocations.

ESMA has moved aggressively under the new MiCA rules to mitigate the risk.

In January, it ordered crypto service providers to cease activity tied to non-compliant stablecoins, prompting top exchanges like Binance and Coinbase to delist tokens, including Tether (USDT) and DAI.

While Cazenave praised MiCA as a “breakthrough,” she emphasized that further reforms may be necessary as crypto continues to evolve.