When the cryptocurrency crash threatens the foundations of Ethereum

A new research document from the Bank of Italy has raised significant alarms regarding the effects of a cryptocurrency crash on Ethereum’s ability to function as a critical financial infrastructure. The analysis conducted by economist Claudia Biancotti examines a scenario so far little considered by regulators: the systemic vulnerability of a public blockchain when its native token loses value. With ETH currently trading at $2.42K, the study highlights how a drastic contraction could turn what is today perceived as a market risk into a direct threat to global financial stability.

The validation mechanism under pressure

The Ethereum blockchain operates on a proof-of-stake model, where validators ensure network security by providing capital (stake) in ETH and receiving rewards in the same currency. This system has revolutionized how blockchains guarantee transaction integrity without massive energy consumption. However, Biancotti emphasizes a critical dynamic: if ETH’s value were to fall significantly, validators would face an economically rational choice.

If validation rewards were to lose substantial value, many network operators might decide to shut down their nodes. This mass defection would lead to a dramatic reduction in the total stake supporting the network, slowing down block creation and compromising Ethereum’s resistance against certain attacks. Just when users and financial institutions would need a reliable network the most, its technical robustness would be weakened.

From market risk to infrastructural risk

What makes this analysis particularly relevant for regulators is the shift in perspective it proposes. Ethereum is no longer solely a platform for speculation on alternative tokens but has become a fundamental layer for the deployment of critical financial instruments. Stablecoins, tokenized securities, and decentralized lending protocols all rely on the certainty that Ethereum will continue to process transactions reliably. Billions of dollars in value pass daily through this infrastructure.

A decline in ETH’s price would therefore have consequences far beyond the cryptocurrency market. Payment and settlement systems, tokenized finance, and all services built on the Ethereum blockchain would see their reliability compromised precisely at the moment a financial crisis could occur. The research models this transition as a shift in risk profile: from market vulnerability (price volatility) to infrastructural vulnerability (failure of essential services).

The convergence of global concerns

The analysis from the Bank of Italy echoes similar warnings already issued by other major international institutions. Both the European Central Bank and the International Monetary Fund have repeatedly warned about the systemic risks posed by large stablecoins, especially in the context of increasing integration with traditional financial systems. These institutions fear that a severe stress event could trigger bank runs and forced asset sales, propagating the crisis beyond the crypto world.

The convergence of these alarms signals a profound change in institutional perception. It is no longer a marginal debate within the crypto community but a central discussion in the offices of monetary policy and financial stability authorities.

The difficult choice for policymakers

Although Biancotti has not proposed specific policy guidelines, the research outlines two diverging paths for regulators. The first involves declaring public blockchains fundamentally unsuitable for regulated finance due to their dependence on volatile native tokens, effectively excluding them from any official financial infrastructure. The second involves permitting the use of Ethereum as a settlement layer but only with robust protective measures: detailed contingency plans, backup settlement agreements with alternative systems, and strict standards for the economic security of validators.

The choice between these two paths will have profound implications for the future development of digital finance. A cryptocurrency collapse would therefore have consequences far beyond retail investors’ portfolios, directly impacting decisions shaping the financial infrastructure of the next decade.

The evolution of institutional perception

What emerges clearly from the Bank of Italy’s analysis is that Ethereum’s token economy is no longer considered an internal matter of the crypto sector but a critical factor with potential implications for the stability of the entire financial system. This evolution in perception, from a marginal phenomenon to a strategic concern for central banks, reflects how the collapse of cryptocurrencies is no longer just a market correction but a potential trigger point for broader systemic instability.