Europe’s top securities regulator has issued a fresh caution regarding the growing cryptocurrency market, warning that despite its current modest size, its increasing connections to traditional finance could eventually threaten broader financial stability.

The European Securities and Markets Authority (ESMA) sounded the alarm on Tuesday, highlighting how economic turbulence—especially from recent U.S. policy shifts—is already weighing heavily on global markets. In this environment, instability from even smaller sectors like crypto could ripple through the larger financial system.

“Europe’s financial markets are currently navigating intense pressure stemming from shifting geopolitical and economic landscapes,” said ESMA Executive Director Natasha Cazenave in remarks to the European Parliament, published on the agency’s website.

The warning follows market jitters triggered by U.S. President Donald Trump’s recent wave of tariffs, which sent both traditional stocks and cryptocurrencies into a sharp decline, though some of those losses were clawed back on Tuesday.

While crypto assets still represent a fraction of the EU’s overall financial system—crypto-focused funds make up less than 1% of EU funds and 95% of EU banks remain uninvolved in crypto—ESMA emphasized the need for vigilance. Cazenave cautioned that as market interlinkages deepen, even small shocks in the digital asset space could have broader consequences.

Although ESMA stated that crypto does not yet pose a material risk to the EU’s financial system, the agency insisted on continued surveillance of the sector as it evolves.

The warning comes at a time when U.S. regulators are loosening restrictions on the crypto sector. President Trump, whose family is reportedly investing in crypto ventures, has advocated for lighter regulations, and the U.S. Department of Justice is now disbanding its National Cryptocurrency Enforcement Team.