Concentrated tech, crypto, and private markets raise fresh liquidity worries for investors
A small group of tech and crypto firms now sits at the core of key market infrastructure, and that concentration could magnify stress just when investors need liquidity most.
According to the CSA’s 2025 Systemic Risk Committee Annual Report on Capital Markets, artificial intelligence, stablecoins and private asset funds now stand out as the main structural vulnerabilities for Canadian capital markets, even as the overall system showed resilience in 2025.
Major institutions, asset managers and market infrastructures are rapidly adopting AI for asset allocation, fraud detection and algorithmic trading, often relying on models and cloud services from a small group of providers.
The report warns that heavy reliance on a few AI models could push many participants into similar trading or pricing decisions, increasing market correlations, and the risk of “synchronized selloffs” that would worsen liquidity and volatility.
On the crypto side, the CSA notes that stablecoins now play a “critical role” in the ecosystem and that global crypto market capitalisation reached about US$4.4tn in October 2025 before easing, driven mainly by Bitcoin and stablecoins.
Stablecoins have a combined global market cap above US$300bn, roughly 10 percent of the crypto market, with USDT (Tether) and USDC (Circle) controlling almost 90 percent of that segment, a level of concentration the CSA flags as a potential financial stability risk as the sector grows.
The integration of stablecoins into money markets heightens the stakes: Tether and Circle together hold about US$140bn in US Treasury bills, and a sudden loss of confidence in major stablecoins could trigger large sales of government securities and disrupt money market liquidity.
The report judges that stablecoins “do not yet pose a systemic risk” given the size of global financial markets, but it calls for increased vigilance and stresses that global regulatory coordination will be essential to manage these risks and prevent regulatory arbitrage.
Closer to traditional portfolios, the CSA highlights that private asset funds—sold without a prospectus and investing in private equity, private debt or real estate—have doubled in size since 2020 to reach $152bn in net assets by the end of 2024, compared with $97bn for hedge funds.
Some private asset funds and fund‑like entities, mainly in real estate, faced “significant liquidity pressure” in 2025 and responded by suspending or restricting redemptions.
They did so in part because of liquidity mismatches, where investors could redeem units faster than managers could sell the underlying assets.
To address those pressures, the CSA says it has proposed rule changes to strengthen liquidity risk management across investment funds, including aligning investor redemption timelines with portfolio liquidity.
The proposals would apply to all investment funds, including private asset funds, but not to similar fund‑like entities that fall outside the “investment fund” definition under Canadian securities law.
The report warns this exclusion leaves a data and oversight gap that is “critical to financial stability” to close.
According to the CSA, traditional fixed‑income and over‑the‑counter derivatives markets “remained broadly orderly” in 2025, with Canadian government and corporate bond liquidity stable even during US trade‑related volatility.
OTC derivatives activity grew mainly because firms were managing interest rate risk after the CDOR‑to‑CORRA transition.
