The European Securities and Markets Authority, the independent financial authority in the European Union, has warned of the high risks of investing in cryptocurrencies.

In its latest Trends, Risks and Vulnerabilities report released on Wednesday, the Emirates Authority for Standardization and Metrology (ESMA) analyzed the impact of COVID-19 on the financial markets, highlighting the increased risks associated with investing in “unregulated crypto assets”.

Authorities noted that cryptocurrencies rose significantly in value and volume in the second half of 2020, while Bitcoin recorded record highs. ESMA said the wave was driven by “positive news in the crypto sector,” including PayPal’s decision to introduce the ability to buy and sell cryptocurrencies on the platform, as well as a growing interest in decentralized finance, or DeFi. “It is also driven by strong investor demand and profit pursuit amid unique global financial and monetary incentives,” the agency wrote.

Amid increasing volumes and demand, cryptocurrencies are “extremely volatile and carry high risks for investors,” the SEC warned, “Unregulated cryptocurrency prices at the highest levels pose significant risks to investors.”

In the new report, ESMA also highlighted the growing DeFi industry and identified tangible benefits such as rejection of brokers, 24/7 availability and resistance to censorship, as well as risks including operational flexibility, scalability and control. ESMA will continue monitoring DeFi’s development as it may cause some regulatory and regulatory issues.

In February, the chairman of France’s main financial regulatory body, Autorite des Marches Financiers, proposed that ESMA become the European Union’s highest regulatory and supervisory body.

Source: CoinTelegraph