ECB Warns of Financial Instability from US Crypto Push

The European Central Bank (ECB) has expressed concern over the potential financial instability that could arise from the United States' aggressive promotion of the crypto industry. The ecb is particularly worried about the influx of dollar-backed stablecoins into European markets, which could destabilize the region's financial system.

The ECB has called for a revision of the Markets in Crypto-Assets Regulation (MiCA) framework, which was recently implemented. The central bank is concerned that US reforms, supported by President Donald Trump, could lead to a surge in dollar-denominated stablecoins in Europe. This could result in a flight of European capital into US assets, undermining the EU's financial sovereignty and exposing banks to liquidity risks.

While the ECB advocates for stricter controls, the European Commission has downplayed these concerns. According to reports, the Commission believes that the existing MiCA framework is sufficient to manage the risks posed by stablecoins, despite upcoming US policies aimed at expanding America’s crypto footprint. The Commission has stated that there is no need for immediate changes to the rules based on these developments.

The stablecoin sector is currently valued at $234.151 billion. The ECB warns that without stricter limits, European issuers could face redemption pressures from both EU and foreign holders, potentially sparking a financial "run" and harming exposed institutions. This concern is shared by Mikko Ohtamaa, co-founder and CEO at Trading Strategy, who noted that the EU had the first mover advantage with regulation but has not fully capitalized on it due to restrictive rules influenced by bank and legacy finance lobbying.

Tether, the issuer of the world’s largest stablecoin, USDT, has been a vocal critic of the EU’s MiCA regulation. Last year, CEO Paolo Ardoino argued that MiCA’s requirements, particularly the mandate for stablecoin issuers to hold at least 60% of reserves in EU bank accounts, could introduce systemic risks to both stablecoins and the broader banking system. Due to noncompliance with MiCA, Tether’s USDT has faced delistings from major European exchanges, including Coinbase, Crypto.com, and Kraken.