ESMA warns crypto ties to traditional finance could spread risk shocks

The European Securities and Markets Authority issued a warning regarding the growing connection between crypto assets and the broader financial system. In its latest risk monitoring report published Thursday, ESMA stated that increased links could amplify risks of shocks spreading across traditional markets. The regulator identified tokenized equities as a developing area, noting their adoption is gaining traction despite remaining negligible compared to global stock markets total volume. ESMA highlighted decentralized finance exploits as another factor deepening these intermarket connections and raising potential for financial spillovers. Additionally, the authority flagged prediction markets as an emerging risk factor. It warned that crypto use in these platforms hinders detection of insider trading, wash trading, and coordinated market manipulation.