Italy's Central Bank has issued a warning about Cryptocurrencies!

The Central Bank of Italy issued a stern warning that the increasing adoption of cryptocurrency assets under the administration of President Donald Trump in the US could pose significant global financial stability risks.

In the financial stability report published every two years, the Central Bank pointed out the increasing vulnerabilities associated with the growth of volatile digital assets and the expanding links between the crypto ecosystem and traditional finance.

The report stated that "the strong growth of Bitcoin and other crypto assets with high price volatility poses risks not only for investors but also potentially for financial stability," referring to the increasing connection between digital assets, traditional financial markets, and the real economy.

Since Trump's re-election and subsequent inauguration in January, U.S. lawmakers have accelerated efforts to regulate crypto, including legislation aimed at overseeing stablecoins, which are digital tokens pegged to the U.S. dollar. There is currently believed to be enough bipartisan support for a stablecoin bill pending in the Senate to move forward.

The Bank of Italy noted that the rise in cryptocurrency prices, including highly speculative tokens, has followed the new administration's announcements of crypto-friendly policies. While some stablecoins pegged to the dollar maintain relative price stability, the broader cryptocurrency market continues to remain quite volatile.

The European Central Bank (ECB) officials also reiterated similar concerns. François Villeroy de Galhau from France and Olli Rehn from Finland warned against the mainstream adoption of cryptocurrencies. Rehn stated on Monday, "I am quite concerned about the potential widespread adoption of cryptocurrencies in the U.S."

The Italian Central Bank also drew attention to the systemic risks associated with the widespread use of dollar-pegged stablecoins. These tokens are largely backed by short-term U.S. Treasury securities. The Bank warned that if a large stablecoin issuer were to face distress, the rush to redeem the tokens could trigger forced sales of reserve assets, potentially disrupting U.S. Treasury markets and creating spillover effects across global finance.