5 Negative Trends in EU Capital Markets: Can Crypto Save the EU?

The European Union (EU) is losing pace in capital markets, a worrying trend with few viable solutions, including crypto. Taking to Platform X, Patrick Hansen, EU Strategy and Policy Executive at Circle, outlined a number of worrying trends in the bloc’s capital markets landscape.

The negative trend of the capital market in the EU

According to Hansen, the EU capital market is no longer competitive and may need an immediate review. If not met, he predicts there is “zero chance” of the region being economically competitive for starved technology areas, including Artificial intelligence (IA).

One of the negative trends is the fall in the capitalization of the EU’s global equity market. In 2009, this metric was about 16%, compared to 34% in the United States. By the end of 2003, the EU’s share fell to 11%, while the United States’ share grew to 45%.

Secondly, the EU’s share of global initial public offerings (IPO) by value between 2015 and 2020 was 15%. This number, according to Hansen, is less than half of the 32% that the US boasts of. Furthermore, another worrying trend in the EU capital markets landscape is visible fragmentation. There are around 27 central securities depositories (CSD) and 14 central counterparties (CCP) licensed to operate in the EU.

In the United States, the case is different, as they operate 1 CSD and 8 CCP, helping to leave the EU without a backlog of cross-border orders. Compounding this fragmentation, more households (32%) hold cash compared to 15% in the US.

Lastly, EU equities accounted for 51% of the EU UCITS Equity Fund’s total assets in 2015. This number fell to 35% in 2022, while that of the US grew from 27% to 42% over the same period.

Can Crypto Solve EU Capital Market Problems?

With the problem in the EU properly defined by Hansen, the question now remains a likely workable solution. Although unidentified, crypto could be the missing piece to solve the EU’s capital market problems.

With Markets in Crypto Assets (MiCA) to be implemented in the coming months, opening the doors to crypto investors could help change the outlook for the block’s capital markets. The United States simply threw its weight behind Spot Bitcoin ETF and the Ethereum counterpart.

The UK Financial Conduct Authority (FCA) also gave the green light to the launch of Crypto ETPs on the London Stock Exchange (LSE) recently. With the tactical mobilization of funds for crypto, a complementary adoption of crypto could notably benefit the EU.

See more information: Tom Emmer criticizes Elizabeth Warren amid triumph of pro-crypto lawmakers

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