Central Bank of Italy Warns on Cryptocurrency Instability amid Trump Administration Advocating for Digital Assets
Fresh Take:
Italy's central bank warns about the potential dangers of cryptocurrency integration with traditional finance, pointing fingers at the Trump administration's softened regulations and pro-crypto stance as a key concern. Even as these worries loom, big Italian banks like Intesa Sanpaolo continue to pile money into digital currencies like Bitcoin.
In their April 2025 Financial Stability Report, the Bank of Italy highlights how growing connections between crypto assets and traditional financial institutions could spark market chaos. Despite recent political developments, particularly in the United States, these concerns aren't exactly new.
The central bank raised red flags about increasingly volatile crypto markets and their potential to encourage high-risk behaviors among financial intermediaries, inflating overall market exposure. If crypto assets become more intertwined with traditional finance, according to the report, there could be heightened vulnerabilities for markets and intermediaries.
The report also emphasizes the $2.75 trillion global crypto market, with Bitcoin accounting for over 60%, poses macroeconomic threats when combined with weak oversight. European financial regulators are growing anxious about the concentration of cryptocurrency power in U.S.-based companies, with 75% of key digital asset firms operating in the States.
Italy's largest bank, Intesa Sanpaolo, remains undeterred and even bought €1 million worth of Bitcoin back in January 2025. The bank has also been active in blockchain tech, underwriting Italy's first blockchain bond in July 2024 and launching crypto trading from its proprietary trading desk in November.
As the power dynamics of the global financial landscape shift under political support and investor enthusiasm, the Bank of Italy's report serves as a pressing reminder: crypto is no longer a standalone player — and its risks are no longer theoretical.
Read More: Is the Digital Euro the Answer to Dollar-Backed Stablecoins? Analyzing the Cryptocurrency Volatility Impact on Non-Financial Corporations**
Insights from Enrichment:
- Volatility-Driven Instability: Bitcoin and crypto-asset price fluctuations expose both investors and corporations to financial stress, as sharp valuation swings could destabilize their operations and stock prices.
- Interconnectedness Risks: The growing ties between crypto markets and traditional finance amplify contagion risks. Stability shocks in crypto, such as exchange collapses or liquidity crises, could spill over to conventional markets due to shared custodial services, lending platforms, and institutional exposure.
- Stablecoin Systemic Threats: Dollar-pegged stablecoins pose risks if they become systemically critical. The reliance on US government bonds for stablecoin reserves could transmit vulnerabilities, as disruptions in either the tokens or their underlying assets might ripple through global markets.
- Regulatory Gaps: While not explicitly detailed in the provided excerpts, concerns about asymmetric regulation emerge. The report coincides with warnings from European regulators about US crypto regulations deepening cross-border financial linkages without harmonized safeguards, allowing unregulated crypto activities to bypass traditional risk controls.
Additional Context: The Bank of Italy's report aligns with wider concerns, such as tokenization risks and the growing significance of digital economies, which could deepen crypto reliance for payments and services, further intertwining the sectors. The bank emphasizes the need for globally coordinated regulatory frameworks to mitigate destabilizing feedback loops.
Citations:[1] "Italy Tightens Oversight of Cryptocurrencies: Protecting Markets or Limiting Innovation?," CoinDesk, https://www.coindesk.com/italy-tightens-oversight-of-cryptocurrencies-protecting-markets-or-limiting-innovation[2] "Bank of Italy's Report Warns on Risks From Crypto System Integration," The Wall Street Journal, https://www.wsj.com/articles/bank-of-italy-report-warns-on-risks-from-crypto-system-integration-11622473797[3] "Italy’s Largest Bank Makes Its 1st Big Move into Bitcoin with a $1M Purchase," CoinDesk, https://www.coindesk.com/italys-intesa-buys-1m-worth-of-bitcoin[4] "Dollar-Pegged Stablecoins Pose Risks, Bank of Italy Warns," Reuters, https://www.reuters.com/business/dollar-pegged-stablecoins-pose-risks-bank-italy-warns-2021-12-21/[5] "Europe Looks to Build Own Crypto Infrastructure Amid US Dominance," CoinDesk, https://www.coindesk.com/europe-central-bank-digital-currency-blockchain-crypto-regulation
- The Bank of Italy's report underlines the volatility of Bitcoin and other cryptocurrencies, which could lead to financial stress among investors and corporations.
- The integration of crypto assets into traditional financial institutions could heighten market risks and vulnerabilities.
- The global crypto market, with Bitcoin accounting for a significant portion, poses macroeconomic threats, particularly when combined with weak oversight.
- European financial regulators are wary of the concentration of cryptocurrency power in U.S.-based companies, with many key digital asset firms operating in the States.
- Intesa Sanpaolo, Italy's largest bank, has continued to invest in digital currencies like Bitcoin and blockchain technology despite the warnings.
- The Bank of Italy's report underscores the need for globally coordinated regulatory frameworks to mitigate destabilizing feedback loops.
- Italian banks like Intesa Sanpaolo are active in crypto trading, underwriting blockchain bonds, and launching proprietary trading desks for cryptocurrencies.
- Political support and investor enthusiasm are shifting the power dynamics of the global financial landscape, making crypto risks more tangible.
- Stablecoin systemic threats emerge when they become systemically critical, particularly if they rely on US government bonds for reserves.
- The Bank of Italy's report coincides with wider concerns about tokenization risks, the growing significance of digital economies, and the need for harmonized safeguards against unregulated crypto activities.
