Crypto Valuations Soar 20% on US Deregulation Hopes, EU Warns of Global Risks

European financial regulators have issued a warning that the rising valuations of crypto-assets, fueled by expectations of deregulation in the US, pose a growing threat to global financial stability. The Joint Committee of the European Supervisory Authorities (ESAs) highlighted this concern in its Spring 2025 risk update, pointing to the destabilizing effects of geopolitical fragmentation, US policy uncertainty, and digital asset market volatility.

The committee, which includes the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA), noted that recent record high crypto valuations and volatility, coupled with increasing interconnections to traditional financial markets, present a significant challenge to financial stability. The report explicitly linked the surge in crypto prices to political expectations, although it did not name President Donald Trump directly.

The report stated, “Crypto: Volatile crypto-asset valuations, driven by expectations of US deregulatory policy agenda; increasing interconnections to traditional financial markets.” This highlights the potential risks associated with the growing influence of crypto-assets in the financial landscape.

The ESAs also emphasized the deepening exposure to volatility, noting that 77% of EU equity fund flows over the past five years were directed to US equity holdings. This illustrates the bloc’s heavy exposure to American markets. Insurers and pension funds also maintain significant allocations outside the European Economic Area, with 6% to 17% of their assets concentrated in the US, depending on the sector. This rising cross-border exposure comes amid elevated market valuations and growing leverage in alternative investment funds.

The report warned that these conditions, paired with crypto speculation, could create “risks of shocks to funds with a liquidity mismatch.” The regulators emphasized the risk of disproportionate market reactions given the macro backdrop. The report stated, “Risk of disproportionate reactions to surprises given recent record high US stock valuations and historically low EU corporate bond spreads.” It further suggested that volatility triggered by policy surprises could have outsized ripple effects across asset classes.

The Joint Committee also warned that growing divergence between jurisdictions, particularly if major economies ease regulations while others tighten, could further erode financial coordination. The report spotlighted the dual threat of AI adoption and cyber risk, which are both escalating in the financial sector. The ESAs warned that the realignment of geopolitical relations “could further heighten cyber risks in the EU.”

The ESAs called on financial institutions to incorporate crypto-related risks into their scenario analysis and to stay alert to policy-driven market shifts. The report advised institutions to “be ready for risks” and emphasized the need for adequate provisioning, recovery plans, and strengthened risk frameworks. While the EU has moved forward with its own regulatory regime for crypto through the Markets in Crypto-Assets (MiCA) regulation, officials are increasingly concerned that a deregulatory push in the US could undermine those efforts and create arbitrage opportunities that destabilize markets.

The ESAs concluded that vigilance is critical as the crypto sector grows in size and influence and warned that the market could potentially face heightened volatility if the geopolitical uncertainty persists. The regulators' warnings underscore the need for coordinated global efforts to manage the risks associated with crypto-assets and ensure financial stability in an increasingly interconnected world.