Discussion highlights potential risks of crypto regulation on financial systems, suggesting increased instability and market discipline erosion.
The United States (US) and European Union (EU) have opted to extend the regulatory perimeter to incorporate crypto-related activities. This risks the integrity and stability of the financial system. Defining features of the crypto world are fraud, theft and facilitating criminal activity; so far at least, it does little to support the real (legal) economy. The risk is that by conferring legitimacy on crypto, regulation will increase the demand for crypto assets, entrench a highly volatile asset in traditional financial institutions, undermine market discipline, and increase financial instability.
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John Thornton (2026) studied this question.
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