The European Securities and Markets Authority (hereinafter: “ESMA”) is a Paris based EU Authority that aims to safeguard the stability of the EU’s financial system and to strengthen investor protection. Founded in 2011, it is one of the three European Supervisory Authorities set up within the European System of Financial Supervision (ESFS).

In its newest Report on Trends, Risks and Vulnerabilities (TRV) published in September 2021, ESMA calls cryptocurrency both a financial innovation and a possible threat due to the cost of crypto mining. The Authority states that following a boom in 1Q21, the market capitalisation of crypto assets would have fallen by almost 40% in May 2021, “once again highlighting [the] high price volatility of those instruments.” In its report, the ESMA emphasis that “most crypto assets (CAs) are highly volatile in price and operate outside of the existing EU regulatory framework, which raises investor protection issues.”

The ESMA’s report coincides with the decision of the Governing Council of the European Central Bank (ECB) to launch an investigation phase of a digital Euro project and to examine new cryptocurrencies regulations as well as new anti-money laundering and tax reporting rules. The ECB expects its investigation to last two years. It is quite conceivable that the first draft regulations relating to cryptocurrencies will subsequently be published.