Prepared by Senne Aerts, Alexandra Born, Zakaria Gati, Urszula Kochanska, Claudia Lambert, Elisa Reinhold and Anton van der Kraaij

Published as part of the Financial Stability Review, May 2025.

The market capitalisation of crypto-assets has surged recently, fuelled by positive and broadening investor interest, including from traditional finance. Several key financial stability risks associated with crypto-assets have been identified in past editions of this publication, and by the Financial Stability Board. They include, among others: interconnectedness with traditional finance; market volatility and lack of transparency; liquidity and maturity mismatches; and leverage and concentration. This special feature focuses on the first two. For these sources, risks for financial stability in the euro area appear limited, but there are signs that interconnectedness between the crypto-asset ecosystem and the traditional financial sector is strengthening. As it does, new channels of potential contagion are opening up, warranting closer monitoring. At the same time, euro area households’ direct exposures are slowly rising from low levels. Data gaps, especially for the crypto exposures of non-banks and leverage, pose challenges both for monitoring and for assessing the scale of these sources of systemic risk. It is therefore essential that these data gaps be closed and that responsible authorities remain vigilant. Although the EU has established a stringent regulatory framework, global regulation is either fragmented or absent, raising the risk of regulatory arbitrage and contagion from abroad.

1 Introduction

Investor interest in crypto-assets has grown enormously, leading to significant valuation gains. Crypto-asset valuations hit a new all-time high in 2024, with market capitalisation reaching USD 3.7 trillion (Chart A.1). The boom was driven by two developments in the United States. These were the US Securities and Exchange Commission’s approval of spot Bitcoin exchange-traded products (ETPs) in January 2024 and expectations of increasingly favourable regulatory and enforcement regimes for crypto-assets under the new US Administration. In the first three months of 2025, however, crypto-asset market capitalisation fell significantly, dropping to USD 2.8 trillion by end-March. At the same time, venture capital investment in blockchain infrastructure and mining rose.^[1] In the EU, the regulatory clarity provided by the Markets in Crypto-Assets Regulation (MiCAR) has reduced some of the risks associated with those crypto-assets covered by the regulation and listed in Europe. It has also raised investor interest in crypto-assets, with an increase in the number of authorised crypto-asset service providers.^[2]

Crypto-assets can affect financial stability through a number of channels and vulnerabilities: interconnectedness with traditional finance; market volatility and lack of transparency; liquidity and maturity mismatches; and leverage and concentration.^[3] This special feature focuses on the first two channels. The following section assesses the risk of market volatility, especially negative wealth effects. There then follows an analysis of the implications for financial stability of interlinkages between crypto-assets and the euro area financial sector. On the basis of these vulnerabilities, data gaps are identified which could hinder robust risk analysis.

2 Wealth effects intensify amid rising crypto valuations and modest household exposures

Rising crypto-asset valuations, coupled with increasing investor exposures, are raising the risks of adverse wealth effects. As holdings rise, adverse crypto-asset price changes have a greater impact on retail and institutional investors, especially given the high volatility displayed by most crypto-asset prices.^[4] Should a crash occur, depending on how these exposures are financed and if there are liquidity mismatches, losses might be amplified, with potential knock-on effects on the financial system and the real economy.^[5]

Bitcoin has been attracting particularly strong attention from investors outside the crypto-asset ecosystem. The latest crypto bull market was characterised by disproportionately strong interest in Bitcoin, with the share of this crypto-asset in total crypto-asset market capitalisation rising from around 40% in 2022 to over 60% in May 2025 (Chart A.1). The launch of spot Bitcoin exchange-traded products (ETPs) in the United States has been a key enabler of this expansion, with aggregate assets under management for these assets totalling over USD 125 billion as of May 2025.^[6] The market for regulated Bitcoin derivatives has also grown strongly, with Bitcoin futures on the Chicago Mercantile Exchange (CME) reaching more than USD 19 billion in open interest.^[7] The growth of Bitcoin-related products has led some major asset managers to consider Bitcoin as an investment which could potentially be used for improving portfolio diversification.^[8]

While Bitcoin has offered early investors high returns, it remains a highly volatile and speculative investment. Bitcoin produced exceptionally high returns in 2024. Its market capitalisation increased by more than 120%, outperforming major technology stocks (Chart A.2, panel a) as well as most other crypto-assets. Nevertheless, Bitcoin prices remain highly volatile, as do the prices of other crypto-assets (with the exception of stablecoins). In 2024 Bitcoin prices were twice as volatile as gold prices and nearly three times as volatile as the S&P 500. What matters for portfolio diversification is the correlation of returns, and in this respect they appear to be closely correlated with the returns of risky assets. Indeed, Bitcoin prices have historically co-moved closely with the market values of (leveraged) investments in technology stocks. At the same time, Bitcoin returns have shown almost no historical correlation with those of gold (Chart A.2, panel a). This means Bitcoin has shown limited portfolio diversification benefits for equity portfolios. Apart from price, Bitcoin’s security and integrity relies on having a sufficiently large number of miners with high computational capacity to prevent any single mining entity from grabbing control.^[9] New Bitcoins enter the limited Bitcoin supply as block rewards to miners, in exchange for the computational power they offer the Bitcoin network. Block rewards are halved about once every four years, reducing the rate of new Bitcoins being mined^[10] and, as a consequence, miners’ income.^[11] At the same time, the computational power required for mining is rising exponentially (Chart A.2, panel b), leading to greater hardware investment and energy consumption. Rising costs in the absence of matching income could result in miners making an exit, increasing mining concentration, and could render the Bitcoin network more vulnerable to cyberattacks or incidents like the one seen in 2013.^[12] This could raise financial stability concerns if households and financial institutions had significant exposures to Bitcoin. Loss of the Bitcoin network’s security and integrity could have further implications for the crypto-asset market more generally, given the outsized role played by Bitcoin within the crypto-asset ecosystem.

Euro area households currently have limited exposure to crypto-assets, including Bitcoin. The ECB’s November 2024 Consumer Expectations Survey (CES)^[13] covering selected euro area countries indicated that, on average, 9.7% of survey respondents (or someone in one of these households) owned crypto-assets, down slightly from the November 2022 figure. Most owners of crypto-assets have a relatively small exposure: 54% of respondents reported holdings of below €1,000 and 91% of respondents reported holdings of below €20,000. Translating this into actual holdings suggests that households hold at least €75 billion in crypto-assets. This estimate represents about 0.23% of household financial assets and 3% of total crypto-asset market capitalisation (Chart A.3, panel a).

Households have been exhibiting increasing interest in owning crypto-assets, however, which could increase risks of adverse wealth effects going forward. CES results show that over half of crypto-asset owners plan to buy more. Even among those households not holding crypto-assets in 2024, 10% said they planned to buy crypto-assets the following year. The share varies across countries and can be as high as 17% (Chart A3, panel b). While CES results confirm that crypto-assets are mainly used for the purposes of investment and speculation, further data and official statistics are needed to understand crypto-asset usage and to measure household exposure and potential wealth effects precisely.

3 Increasing interconnectedness with traditional finance

Risks from the crypto-asset ecosystem can also be transmitted through an increasing number of interlinkages with the traditional financial system. These interlinkages stem from direct exposures through banks and non-banks as well as from indirect exposures through holdings of crypto-asset-related investment products, banks providing services to the crypto-asset industry and stablecoins holding traditional financial assets.

Although euro area banks’ exposures to the crypto-asset ecosystem remain limited, they are growing. By the end of 2024, the direct holdings of euro area significant institutions of crypto-assets were limited (around €1 million, up from around €66,000 in 2023).^[14] Similarly, exposures to derivatives with crypto-assets as the underlying also grew between 2023 and 2024, from around €400 million to €600 million. At the same time, significant institutions are becoming increasingly exposed indirectly to crypto-assets through services such as custody (i.e. the safekeeping or control of assets on behalf of clients) and deposit-taking from crypto-related businesses.^[15] For example, euro area significant institutions provided €4.7 billion of custody services related to crypto-assets and crypto-related investment products in 2024, up from around €400 million in 2023. Moreover, banks increasingly offer crypto-related services such as brokerage and trading.

Banks only hold limited amounts of deposits from companies which have crypto-related business models. In principle, heavy reliance and concentration of funding sourced from companies with crypto-related business models could pose liquidity risks should crypto-asset market conditions become adverse. This was demonstrated in March 2023 by the failure of a small US bank that had been offering services to crypto-asset clients.^[16] An analysis using data for the ten largest depositors per bank, focusing only on key crypto-asset trading platforms, shows that fewer than ten euro area banks obtain funding from such trading platforms, with the amounts being very small. Specifically, these deposits stood at just €1.2 billion in the fourth quarter of 2024, dropping from €2.5 billion in the third quarter of 2021 (Chart A.4). Given the requirements of MiCAR for stablecoin issuers to hold part of their reserves at EU banks, an increase in deposits sourced from stablecoin issuers in the future cannot be excluded.

For now, financial intermediaries appear to be holding very limited amounts of crypto-asset-related investment products. In the fourth quarter of 2024 euro area investors held €17 billion in crypto-asset-related investment products, of which around €3.4 billion (20%) was held by the euro area financial sector (Chart A.5, panel a). Most investment products were held by households (€10 billion, or 59%), while the non-financial sector held another €3.5 billion (21%).

The growing availability of regulated crypto-asset-related investment products may, however, encourage investment by traditional financial intermediaries. The number of crypto-asset-related investment products that euro area holders invest in has grown steadily, increasing from 215 in the fourth quarter of 2023 to 294 in the fourth quarter of 2024.^[17] Investments are concentrated in just a few products, but the top five have been losing market share since the fourth quarter of 2022 as more investment products become available (Chart A.5, panel b). With institutional investors exhibiting increasing interest in crypto-assets, the wider availability of regulated crypto-asset-related investment products could encourage additional investment in crypto-assets, possibly resulting in stronger interconnectedness between traditional financial intermediaries and the crypto-asset ecosystem in the future. This is further facilitated by traditional exchanges that are increasingly offering trading and clearing for these investment products.^[18]

The market for stablecoins – a specific type of crypto-asset – is growing rapidly. Stablecoins are an important part of the crypto-asset ecosystem, facilitating the trading and exchange of fiat currencies for non-stablecoin crypto-assets and vice versa. They are now used in around 80% of all trades executed on crypto-asset trading platforms, up from 45% five years ago (Chart A.6, panel a). Although the use of stablecoins outside the crypto-asset ecosystem is currently still limited, their rapid growth warrants continuous monitoring. With asset holdings and maturity transformation modalities that are similar to those of money market funds (MMFs), they have similar vulnerabilities.^[19] The market capitalisation of the largest US dollar-denominated stablecoins had increased to around USD 231 billion as of May 2025 (Chart A.1). Two US dollar-denominated stablecoins predominate: Tether (USDT), with a market capitalisation of USD 149 billion and a market share of 65%, and Circle (USDC), with a market capitalisation of USD 62 billion and a market share of 27%. Euro-denominated stablecoins licensed under MiCAR had a market capitalisation of around USD 338 million as of end-April 2025.^[20]

Stablecoins have several interlinkages with the traditional financial sector in the United States. Based on their own reporting, USDT and USDC invest significant shares of their reserve assets in US Treasuries, especially in short-duration instruments such as Treasury bills. In fact, the size of their reserve assets is comparable to those of the largest MMFs in the world that invest in sovereign debt instruments (Chart A.6, panel b).

The positive stance taken by some authorities towards crypto-assets may attract further interest from the financial sector, driving up prices. Investor sentiment received a boost from news of some authorities’ plans to create “strategic” Bitcoin reserves and that some central banks are giving consideration to including Bitcoins in their investment portfolios.^[21] Following through on these plans may send a signal to the traditional financial sector that Bitcoin, as well as other crypto-assets, is a conventional investible asset class. It could also drive up Bitcoin prices still further if such strategic reserves came with additional purchases of Bitcoins.^[22]

4 Data gaps mask the true size of the risks posed by crypto-assets

Data gaps and reporting lags, especially for the non-bank financial intermediation (NBFI) sector, pose challenges for robust financial stability assessment. Regulatory and ad hoc reporting for the euro area banking sector provide a relatively good picture of the contagion channels running from crypto-assets to the banking system, especially in combination with the EU regulatory treatment of banks’ exposures to crypto-assets.^[23] Some data are available for certain segments of the euro area NBFI sector and suggest very limited exposures.^[24] However, reporting, prudential rules and supervision for the euro area NBFI sector are not as comprehensive as they are for the banking sector. As a consequence, responsible authorities have blind spots on possible contagion channels running between crypto-assets and non-banks. This is particularly the case for spot holdings of crypto-assets and the use of leverage. Besides data on exposures, assessing financial stability risks also requires reliable data on the crypto-asset ecosystem, including data on crypto-related fraud.

Contagion effects on the NBFI sector may be larger than the available data are able to portray. So far, all crypto busts witnessed have had only limited financial stability implications, as losses have mostly been contained within the crypto-asset ecosystem and have mainly affected retail holders.^[25] Increasingly positive investor sentiment from traditional finance, coupled with limited visibility of the interlinkages between non-banks and the crypto-asset ecosystem, could raise hidden sources of financial stability risk, with possible knock-on effects for banks.

5 Conclusion

If the current trends of rapid growth and increasing interconnectedness with traditional finance continue, crypto-assets will eventually pose risks to euro area financial stability. For now, these risks still appear to be limited – crypto-assets have not yet become an integral part of traditional finance. However, the combination of rising crypto-asset prices and traditional financial institutions entering the crypto-asset market raises possibilities for substantial contagion channels from crypto-assets to traditional finance to open up.

Moreover, data gaps pose challenges for monitoring and assessing the direct and indirect contagion channels from the crypto-asset ecosystem to the financial sector. Blind spots exist, in particular for exposures to the less-regulated NBFI sector, and the use of leverage. Hence, it cannot be excluded that hidden pockets of vulnerability already exist in the NBFI sector, with possible knock-on effects for banks. Looking forward, it is crucial that these data gaps are closed and that supervisory authorities remain vigilant.

The implementation of international crypto-asset standards remains fragmented at the global level. The EU has implemented a stringent regulatory framework through MiCAR. At the global level, however, regulation remains fragmented, raising the risk that regulatory arbitrage and cross-border contagion could undermine effective risk mitigation efforts in the EU.^[26] Given the global nature of crypto-assets, it is of paramount importance for the G20’s crypto-asset roadmap to be implemented globally. This would include the FSB’s recommendations on regulating crypto-asset markets and activities and the Basel standard for banks’ exposures to crypto-assets.^[27]