5 Negative Trends In EU Capital Market, Can Crypto Save The EU?

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As a seasoned crypto investor with a keen interest in European markets, I find Hansen’s analysis of the EU capital market trends both insightful and alarming. The EU’s dwindling competitive edge in global equity markets is a cause for concern, especially when it comes to financing-intensive tech areas like AI.

The European Union (EU) is falling behind in the Capital Markets, a troubling development that calls for viable solutions such as crypto. In a discussion on X platform, Patrick Hansen, Circle’s EU Strategy and Policy Executive, has highlighted several worrying trends in the EU’s capital market sector.

The Negative Capital Market Trend In the EU

Hansen asserts that the EU capital market has lost its competitiveness and may require significant improvements to stay relevant. Failure to act promptly could result in a bleak economic future for the EU, particularly in rapidly developing sectors such as Artificial Intelligence (AI), where there is little to no chance of remaining competitive if left unaddressed.

One unfavorable development is the significant decrease in the European Union’s (EU) representation within global equity markets. In comparison to the US, which held a 34% share in 2009, the EU accounted for approximately 16%. However, by the end of 2003, the EU’s share had shrunk to around 11%, while the US saw its share expand to approximately 45%.

1/ Our EU capital markets are no longer competitive & this needs to change ASAP.

If we don’t make the necessary adjustments, there is no likelihood that we will remain economically competitive, particularly in technology sectors requiring substantial financial investments such as artificial intelligence.

A few concerning trends/facts & key solutions to this problem

— Patrick Hansen (@paddi_hansen) May 25, 2024

The EU accounted for only 15% of the total value of IPOs worldwide from 2015 to 2020, according to Hansen’s data. This is significantly lower than the US’s share of 32%. Moreover, the EU capital markets landscape shows a clear sign of fragmentation with approximately 27 CSDs and 14 CCPs authorized to operate within the Union.

In the United States, there’s a distinct situation with only one Commodity Swap Dealership (CSD) and eight CCPs (Central Counterparties) in operation, making it difficult for the EU to establish a unified order book without cross-border transactions. To add complexity, approximately 32% of American households are hoarding cash, as opposed to the 15% in the US.

In the end, EU stocks represented approximately half (51%) of the overall assets in EU UCITS Equity Funds back in 2015. However, this proportion has since dropped significantly to around one-third (35%) by 2022. Conversely, the allocation to US stocks has expanded from a quarter (27%) to nearly half (42%) of these funds’ assets within this period.

Can Crypto Resolve EU Capital Market Woes?

Hansen has clearly outlined the EU’s issue. The challenge lies in finding a feasible approach to resolve it, and cryptocurrencies could potentially play an essential role in addressing the concerns within the EU capital markets.

With the Markets In Crypto Assets (MiCA) regulatory framework imminently being implemented in Europe, this could potentially attract more crypto investors and shift the European Union’s perspective on capital markets. The US has recently given its strong support to Bitcoin and Ethereum spot Exchange-Traded Funds (ETFs).

The Financial Conduct Authority (FCA) in the UK has given its approval for the introduction of crypto exchange-traded products (ETPs) on the London Stock Exchange (LSE). This move could significantly boost the EU’s adoption of cryptocurrencies, as it represents a strategic infusion of funds into the crypto market.

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2024-05-25 19:33