Crypto's growth within traditional institutions will create contagion risk that threatens financial stability, ECB warns

The European Central Bank warned of the risk of financial stability due to the ties between traditional institutions and the cript market.

The first deep dive into the sector by the European Central Bank was outlined in the biannual financial review published Tuesday. The central bank warned that the threat of an increase in the number of infections from the digital currency is increasing.

Over the last few years, the historical volatility of cryptocurrencies has continued to dwarf the volatility of the diversified European stock and bond markets. The ECB said that investor appetite pushed the price of cripts to all-time highs.

The European Central Bank said that banks, asset managers and other institutional investors are increasing their exposure to digital assets, giving customers and clients stronger ease of access to trading that could further fuel the growth of digital assets.

The developments observed to date show all the signs of an emerging financial stability risk.

Current market conditions and size for cripts are similar to those that led to the global financial crisis of 2007, according to the European Central Bank.

The recent downfall of stablecoins like TerraUSD and Tether that lost their currency pegs and triggered a broader selloff in the market has led to calls for stronger oversight of cryptocurrencies in the US and UK.