Are
cryptocurrencies and artificial intelligence dangerous? The European Securities
and Markets Authority (ESMA) believes so and suggests that the associated risk
level will continue to rise. The regulator provides eight reasons to support
its thesis while also drawing attention to the growing cybersecurity problem in
EU countries.
ESMA
recently released its second ‘Trends, Risks, and Vulnerabilities (TRV) Report’
for 2023. The report delves into various financial market trends, including
significant attention to the risks of cryptocurrencies and AI.
In the
case of the cryptocurrency market, the regulator identifies four main risks,
taking into account volatility, regulations, security, and stablecoins:
- Market
Volatility: ESMA
notes that the cryptocurrency market remains highly volatile. The report
suggests that fluctuations in cryptocurrency prices can have wide-ranging
effects on the financial ecosystem. - Regulatory
Gaps: The report
emphasizes the need for comprehensive regulations to ensure market integrity
and consumer protection. The absence of a unified regulatory framework across
jurisdictions makes the market prone to fraud and money laundering risks. - Cybersecurity
Risks: One primary
concern ESMA highlights is the persistent risk of cyberattacks. The report
mentions a spike in publicly acknowledged cyberattacks on financial entities,
many involving cryptocurrencies. - Stablecoin
Concerns: ESMA
points out that the rising popularity of stablecoins like Tether (USDT) and
Binance USD (BUSD) brings new challenges. The report suggests that the lack of
clarity on how these assets are pegged to traditional currencies can lead to
market instability.
“Financial
market sentiment improved in the first half of the year, despite the market
stress originating from the US banking sector. Nonetheless, the economic
outlook remains fragile and uncertainties continue to drive markets. ESMA is
therefore keeping the overall risk assessment across its remit at the highest
level,” Verena Ross, the Chairwoman of ESMA, commented in the press release.
In the
case of artificial intelligence, ESMA lists three additional risks, including
data privacy, ethical concerns, and the potential for market manipulation:
- Data
Privacy: The report
indicates that the adoption of AI in financial markets poses significant…
