- The European Union (EU) Capital Market is slipping by a great deal as shown by some key trends, but can crypto save the bloc?
- The EU Capital Market is lagging behind that of the United States.
- The Capital Market woes may be resolved with Bitcoin or crypto embrace.
Explore how the European Union’s capital market struggles and the potential role of cryptocurrency in revitalizing the bloc’s financial landscape.
The Negative Capital Market Trend In the EU
The European Union (EU) is losing pace in the Capital Markets, a concerning trend that has prompted discussions on potential solutions, including crypto. Patrick Hansen, Circle’s EU Strategy and Policy Executive, has outlined a series of concerning trends in the bloc’s capital market scene.
According to Hansen, the EU capital market is no longer competitive and might need an immediate overhaul. If not attended to, he predicts that there is a “zero chance” the region will be economically competitive for financing-hungry tech areas such as Artificial Intelligence (AI).
One of the negative trends is the slump in the EU’s global equity market cap. As of 2009, this metric stood at roughly 16% compared to the 34% for the United States. By the end of 2023, the share of the EU had slumped to 11% while that of the United States had grown to 45%.
Secondly, the EU’s share of global Initial Public Offerings (IPOs) by value from 2015 to 2020 came in at 15%. This figure, according to Hansen, is less than half the 32% the US boasts. Another concerning trend in the EU Capital Markets landscape is the visible fragmentation. There are about 27 Central Securities Depositories (CSDs) and 14 Central Counterparties (CCPs) that are licensed to operate within the EU.
In the United States, the case is different as one CSD and eight CCPs operate, helping to floor the EU with no cross-border order book. To compound this fragmentation, more households (32%) are holding cash compared to the 15% in the US.
Lastly, EU stocks accounted for 51% of the total assets of EU UCITS Equity Fund in 2015. This figure has slumped to 35% in 2022 while that of the US grew from 27% to 42% within the same time span.
Can Crypto Resolve EU Capital Market Woes?
With the problem in the EU properly defined by Hansen, the question now remains a probable working solution. While not identified, crypto might be the missing piece in solving the EU Capital Market woes.
With the Markets In Crypto Assets (MiCA) regulatory framework set to be implemented in the coming months, opening the doors to crypto investors might help change the bloc’s capital market outlook. The United States just fully threw its weight behind a spot Bitcoin ETF and the Ethereum counterpart.
The United Kingdom’s Financial Conduct Authority (FCA) also greenlighted the launch of crypto ETPs on the London Stock Exchange (LSE) recently. With the tactical mobilization of funds to crypto, a complementary embrace of crypto might benefit the EU remarkably.
Conclusion
The European Union’s capital market is facing significant challenges, with a decline in global equity market cap and IPO values. The fragmentation within the market further exacerbates these issues. However, the potential integration of cryptocurrency, supported by regulatory frameworks like MiCA, offers a glimmer of hope. By embracing crypto, the EU could revitalize its capital market and regain its competitive edge on the global stage.
