As crypto markets surge past €3trn, the European Securities and Markets Authority has once again sounded the alarm on investor risks. In written comments to Paperjam, Anne Chone, senior risk analysis officer, and Michael Leibeck, policy officer in investor protection and intermediaries at Esma, outlined the regulator’s concerns and the limitations of investor protections under markets in crypto-assets (Mica) regulation.

Kangkan Halder: Why did Esma renew its warning on crypto-assets? What key risks are driving your concerns?

Anne Chone and Michael Leibeck: Esma issued a first on crypto-assets more than two years ago, in cooperation with the other European Supervisory Authorities--the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (Eiopa). Since then, significant evolutions have occurred in the crypto-asset markets and also in the regulatory framework:

Firstly, from November 2024 to the present, the value of certain crypto-assets has seen a rapid and strong increase, hitting new records. Secondly, the new EU regulatory requirements for firms providing crypto-asset services, the “”, entered into application on 30 December 2024.

In this context, Esma has decided, in agreement with the supervisory authorities of all EU member states, to remind investors of risks arising from cryptos and to provide them with information needed to understand the limits to their protections under Mica.

Esma did this through a published in December 2024. In the warning Esma cautions investors in relation to the current crypto-asset hype and reminds them that while the new Mica framework increases the protection for holders of crypto-assets and clients of crypto-asset services, it does not eliminate all risks related to such investments.

The crypto market surged to €3trn--does this worry the regulators?

Esma is concerned that investors in Europe face high risks when buying crypto-assets. With the recent surge in prices, many investors are lured into believing that buying crypto-assets will yield them stellar returns in a very short timeframe. Crypto-assets are extremely volatile and risky compared to other assets like bonds and shares.

However, in the crypto market, strong demand and offer dynamics drive prices, and the crypto instruments themselves do not offer tangible value.

In addition, the environment is plagued with scams and frauds in the absence of a comprehensive supervisory oversight globally. Let us not forget that these markets collapsed by 70% in a year between November 2021 and November 2022, mainly driven by news on corporate failures and fraud.

There is, therefore, a real risk for investors to lose most if not all of their investment. This is why we have formally warned investors repeatedly in the past, and we renewed this warning a few weeks ago.

Isn’t Mica supposed to address these risks? Where do its limitations lie?

The entry into application of the Mica framework is the starting point of the regulation of crypto-assets at EU level, with specific protections for holders of crypto-assets and clients of crypto-asset service providers.

The new rules include information requirements, obligations for firms providing custody services to ensure that clients have access to their crypto-assets, obligations for firms providing advice on crypto-assets and others.

Mica can contribute to strengthen this recently emerged market and improve the treatment of investors. However, it is important to emphasize that despite Mica, crypto-assets remain complex and risky for a number of reasons. Many are highly speculative, with their prices subject to rapid and significant fluctuations, both upwards and downwards, often occurring overnight. Additionally, the underlying technology makes them prone to various risks, particularly those associated with IT programming.

Equally important, the safeguards provided by Mica do not offer the same level of protection as those established for traditional investment products, such as securities under Mifid II. For example, contrary to the rules covering traditional investment services, Mica does not oblige all providers of crypto-asset services to collect clients’ information to assess their ability to understand the crypto-assets products they wish to trade.

Given the rapid evolution of crypto-asset markets, the continuous technological advancements and the application on the ground, Mica may require future adaptations. While Esma will continue paying attention to the convergent application of Mica and analysing any issues emerging, the initiative for any future changes of this framework primarily lies, as for any EU regulation, with the European Commission.

Are EU businesses and institutions increasing systemic risk by expanding into crypto?

Until recently, the connections between the crypto sector and traditional financial markets were limited. However, in 2024, this market rebounded and this has led to growing interlinkages.

Funds and ETFs in the US and other regions have started investing in cryptos and many companies operating within crypto markets have established funding relations to traditional banks. Additionally, the raising number of retail investors with increasing exposures renders crypto-assets an issue of growing economic relevance.

Investors therefore need to be very vigilant, and so are we as regulators and supervisors.

Could another major crypto crash pose a threat to financial stability?

With the total current market size at €3tn, crypto assets are relatively small, comprising just around 1% of total global financial assets. Still, this is something that requires monitoring.

More specifically, the growth of investment products providing exposure to crypto-assets--crypto funds had a combined Nav [net asset value] of around €160bn globally as of end-January 2025--and the development of stablecoins, €215bn globally, require monitoring because they could act as risk transmission channels between crypto and traditional markets.

If the crypto market in the US faces a downturn, how would it impact global markets and the euro area?

The rollercoaster ride of crypto-asset prices has led to remarkable gains and losses in the past. So far, these fluctuations have had no material impact outside the crypto world.

But we must consider the future. If crypto-assets continue to grow substantially in size, or their linkages with the financial system and the real economy increase without appropriate regulatory oversight, financial stability challenges could arise.