The European Securities and Markets Authority, the European Union's independent financial authority, has warned about the high risk of cryptocurrency investment.

In its latest “Trends, Risks and Vulnerabilities” report published Wednesday, the ESMA analyzed the impact of COVID-19 on financial markets, highlighting the increased risks linked with investment in “non-regulated crypto-assets.”

The authority mentioned that crypto assets saw a massive surge in value and trading volumes during the second half of 2020, with Bitcoin reaching all-time highs. The ESMA stated that the surge was driven by “positive newsflows in the crypto sector,” including PayPal’s move to roll out its crypto buy and sell option on the platform as well as the growing interest in decentralized finance, or DeFi. “It is also fuelled by strong investor demand and search for yield amid unprecedented global fiscal and monetary stimulus,” the agency wrote.

Amid the increasing volumes and demand, crypto assets are “highly volatile and bear high risks for investors,” the ESMA warned, stating, “Prices of non-regulated crypto assets at all-time highs imply significant risks for investors.”

As part of the new report, the ESMA also noted the growing DeFi industry, outlining its supposed benefits like disintermediation, 24/7 availability and censorship resistance as well as risks including operational resilience, scalability and governance. The ESMA will continue to monitor developments in DeFi, as it may raise specific regulatory and supervisory challenges, it said.

In February, the chairman of France’s top financial regulator, the Autorite des Marches Financiers, proposed that the ESMA become the chief authority for crypto regulation and supervision in the EU.