The head of Europe’s top market watchdog – the European Securities and Markets Authority (ESMA) – has cautioned investors against waiting for a bailout to crypto firms following the debacle of multiple projects in the space that has led to billions in losses.
According to Verena Ross, those who invest in cryptocurrencies should take the latest downturn in the space as a “cautionary lesson” in regards to how risky these assets are and the kinds of losses they are exposed to experience if they participate in what remains a largely unregulated market.
In addition to this warning, Ross stated that the agency has no plans to propose a bailout to help collapsed crypto firms and emphasized that investors have already been warned on multiple occasions about the possibility of losing all of their money in this activity.
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“We have all said that this is something that is not currently regulated, not something where there is any control over the providers, we know there is a lot of fraud and aggressive marketing going on”, Ross stated during an interview with the Financial Times.
Ross’s remarks come at a point when the value of crypto assets combined has declined by nearly 60% as per data compiled by CoinMarketCap as macroeconomic conditions across the globe have deteriorated.
In addition, there have been some prominent incidents such as the collapse of the Terra ecosystem and its flagship native tokens UST and LUNA – an event that led to over $60 billion in losses for investors and that revealed the inherent flaws of the current regulatory framework as nobody has been held accountable for what happened.
ESMA Will Have More Authority to Regulate Cryptos Under MiCa
Recently, the European Commission published its first comprehensive piece of regulation for the crypto industry known as the “Markets in Crypto-Assets” regulation, also known as MiCa, in which it set forth some of the steps that companies within the space would have to follow to offer securities and operate within the region.
ESMA is expected to participate in the regulation of this up-and-coming industry by creating a registry of all crypto assets made available in the continent while it will also be in charge of granting licenses and permissions to brokers and other similar institutions to provide their services to consumers in Europe.
The decentralized nature of the blockchain makes this a complicated task as users can access projects and invest in the different assets made available by a large number of issuers without necessarily having to go through a regulated exchange.
In this regard, the so-called decentralized finance (DeFi) trend may be one of the most challenging areas of the industry to regulators have limited capacity in terms of how far they can go to shut down and prevent these firms from reaching out and offering their products and services to unwary investors.
Unregulated Companies Are a Severe Threat to Unwary Investors
In recent weeks, a handful of crypto exchanges have faced financial and operational issues due to their exposure to under-collateralized loans granted to individuals and investment funds whose positions were negatively impacted by the crypto winter.
The most prominent example thus far has been the demised Asian crypto hedge fund Three Arrows Capital, which managed to amass billions of dollars in loans from multiple parties that it has now defaulted on as its bets on several projects went south during the latest downturn.
Most of these companies have unilaterally decided to pause all withdrawals and transfers within their platforms, leaving consumers with no other choice than to wait and see if there will be a satisfactory resolution to the issues these vendors have encountered.
The fact that most of these brokers are not domiciled in jurisdictions where the crypto space is appropriately regulated has allowed them to operate without reporting their financial or operational conditions periodically so investors can be protected in case they go out of business.
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- 10 Best P2P Crypto Exchanges in July 2022
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