- The Bank of Italy has flagged the growing overlap between digital assets and traditional finance
- Crypto-asset values have soared following pro-crypto signals from the new US administration
- The bank warns that traditional finance could be negatively impacted if more institutions adopt digital assets
The value of crypto-assets has surged in early 2025, spurred by the US government’s pro-crypto policies, raising alarms in Europe over the financial system’s vulnerability to digital asset volatility. A new Financial Stability Report from the Bank of Italy highlights both the explosive growth in the market and the increasing ties between crypto and traditional financial institutions. The bank warns that Bitcoin’s notorious price volatility could begin to impact traditional markets as more institutions dip their toes into the digital asset waters.
A Crypto Boom—and a Growing Concern
The global crypto market climbed significantly in early 2025, reaching $2.75 trillion by March before easing slightly. “Bitcoin alone makes up over 60 per cent of that,” the Bank of Italy noted in its April report, with another 30 per cent comprised of unbacked crypto-assets and just 9 per cent consisting of stablecoins.
Driving this spike was a series of crypto-friendly initiatives from the US government, including the establishment of a Strategic Bitcoin Reserve and new rules allowing banks to conduct crypto transactions without prior regulatory approval. This, the report warns, “triggered a temporary but sharp increase in global market prices,” with speculative assets seeing particularly dramatic gains.
Traditional Finance and Crypto: Lines Blurring
The Bank of Italy is especially concerned about the deepening links between crypto markets and conventional finance. “A large share of Bitcoin is reportedly held by ETF issuers and corporate treasuries,” it stated, warning that such exposure “may jeopardize firms’ financial stability due to Bitcoin’s price volatility.”
It also flagged the lack of governance in crypto-native firms, most of which are based in the US, China, and Canada, but largely absent in the euro area. These firms, often operating outside of traditional financial regulation, could pose systemic risks if integrated further into financial infrastructure.
Regulators Racing to Catch Up
The Bank praised the EU’s Markets in Crypto Assets (MiCA) regulation as a first step in mitigating crypto-related threats, but stressed that even more robust safeguards are needed. It noted that MiCA requires crypto service providers to meet standards around capital, governance, and client fund separation—but the complexity of their operations means “additional protections against technological, market and strategic risks” are essential.
The report also warned that if dollar-pegged stablecoins were to become systemic, the resulting demand for US Treasury assets could cause major dislocations if any issuer failed. That could even impact US sovereign debt markets—echoing fears raised by American regulators.
