European Central Bank seeks to increase monitoring activities of cryptocurrencies with on-chain data

In a recently released report, the European Central Bank (ECB) outlined its plan to devise a monitoring framework of the cryptocurrency market, using both on-chain data and metadata related to off-chain transactions. 

The bank says its monitoring activities are relying “to a great extent” on publicly available data such as market capitalization, prices, and trading volumes. However, it also plans to use commercial data, market indicators, and on-chain data to aid its understanding of the cryptocurrency market. 

To justify the necessity of its monitoring activities, the ECB points out that the traditional financial system is subject to risks from cryptocurrencies due to their close connection. Additionally, “spillover effects may also be transmitted to the real economy [from the cryptocurrency market],” the report states. 

The bank also lists several challenges it is facing in understanding the nascent market, the most prominent one being the data gap related to the cryptocurrency holdings of financial corporations and payments with cryptocurrencies.