The European Union (EU) is losing steam in its capital markets, a worrying trend with several viable solutions, including cryptocurrencies. Patrick Hansen, EU Strategy and Policy Executive at Circle at X-Platform, outlined a series of worrying trends in the EU capital markets scene.
Negative trends in capital markets in the EU
Hansen said EU capital markets may no longer be competitive and are in urgent need of reform, without which he predicted there was “zero chance” the region would be economically competitive in high-demand technology areas, including artificial intelligence (AI).
One negative trend is the decline in the EU’s share of global stock market capitalization. As of 2009, this indicator stands at around 16%, ahead of the 34% in the U.S. By the end of 2003, the EU’s share had fallen to 11%, while the U.S. share had risen to 45%.
1/ EU capital markets are no longer competitive and this needs to be improved urgently.
Otherwise, there is no chance of being economically competitive, especially in a capital-intensive technology field like AI.
Some worrying trends/facts and key solutions regarding this issue 🧵 pic.twitter.com/ZQRjyL9gIw
— Patrick Hansen (@paddi_hansen) May 25, 2024
Secondly, the EU’s share of global initial public offerings (IPOs) in value terms between 2015 and 2020 was 15%. This figure is less than half of the 32% boasted by the US, according to Hansen. Another worrying trend in the EU capital market environment is its visible fragmentation: there are around 27 licensed central securities depositories (CSDs) and 14 central counterparties (CCPs) operating in the EU.
The situation is different in the US, which is at the bottom of the EU with one CSD and eight CCPs in operation and no cross-border order books.Further exacerbating this fragmentation, 32% of households hold cash compared to 15% in the US.
Finally, EU stocks accounted for 51% of total assets of EU UCITS equity funds in 2015. This figure fell to 35% in 2022, while US stocks increased from 27% to 42% within the same period.
Can cryptocurrencies solve EU capital market woes?
With the EU problem properly defined by Hansen, it now remains a likely solution. Although not specified, cryptocurrencies may be the missing piece to solving the EU capital markets woes.
With the regulatory framework for cryptocurrency markets (MiCA) due to be implemented in the coming months, opening up to crypto investors could help transform the outlook for capital markets in the European Union, after the United States just fully backed spot Bitcoin and Ethereum ETFs.
The UK’s Financial Conduct Authority (FCA) also recently approved the launch of a cryptocurrency ETP on the London Stock Exchange (LSE). Accepting cryptocurrencies as a complement could be of great benefit to the EU due to the strategic mobilization of funds into cryptocurrencies.
Read more: Tom Emmer slams Elizabeth Warren amid pro-crypto lawmaker victory
