The European Central Bank said that amid inflation and the growing popularity of cryptocurrencies, the “exotic” market segment is more prone to speculative bouts of volatility than ever before.
According to the European Central Bank (ECB), the pursuit of higher yields amid rising inflation and falling interest rates
prompted investors to take big risks, which made a wide segment of the market, including cryptocurrencies, vulnerable to corrections. The ECB acknowledged that cryptocurrencies have grown in popularity and relevance, and stated that cryptocurrency markets are prone to “speculative bouts of volatility.”
According to the regulator, the increasing use of leverage by investors may lead to “large concentrated losses. The ECB also warned against the growing link between stablecoins and the traditional financial market.
Since the beginning of this year, the ECB’s rhetoric has not changed. In May, European Central Bank Vice President Luis de Guindos said crypto assets should not be considered “real investments” as they have “weak fundamentals.” According to him, such assets will always be subject to great volatility. Therefore, they need to be subject to the same level of regulation as traditional assets.
However, many investors see the volatility of cryptocurrencies as an advantage. Raoul Pal, former hedge fund manager Goldman Sachs and CEO of Real Vision TV, cites bitcoin volatility as a positive factor for the cryptocurrency market. According to him, cryptocurrency can grow by 5% per day, however, as well as fall. He believes that this is normal and called the volatility of bitcoin a function that determines the reward for risk.
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