Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB), has suggested a dark future for cryptocurrencies, in which digital assets could be used for little more than gambling among investors.
In written remarks to a panel at the Bank for International Settlements Annual Conference on June 23, Panetta said that the perception of cryptocurrencies among investors as a “robust store of value” began to dissipate in late 2021 and early 2022, when total market capitalization fell by more than $1 trillion. According to the ECB official, the “highly volatile” nature of crypto assets made them suitable for gambling, and they should be treated as such by global lawmakers.
“Because of its limitations, cryptocurrencies have not become a robust and innovative form of financing, but have become a harmful form,” Panetta said. “The cryptocurrency ecosystem is plagued by market failures and negative externalities, and is bound to experience further market disruption unless adequate regulatory safeguards are put in place.”
And added:
“Policy makers should be wary of supporting an industry that has so far produced no social benefit and is trying to integrate more and more into the traditional financial system, both to gain legitimacy as part of that system and to take advantage of it.”
Crypto has relied on constantly creating new narratives to attract new investors, but has failed to deliver on its promises. Policymakers should be wary of supporting an industry that has so far produced no benefits for society.
Read the speech https://t.co/okum8fH3qf
1/3 pic.twitter.com/40OlefVExB
—European Central Bank (@ecb) June 23, 2023
Panetta stated that the “security, scalability and decentralization” of cryptocurrency transactions “is not achievable,” noting the immutability of blockchains as a negative aspect of the space due to the fact that transactions often cannot be reversed. He cited the collapse of FTX, as well as a recent lawsuit filed by the United States Securities and Exchange Commission against Binance, as “fundamental shortcomings” of the ecosystem.
“Cryptocurrency enthusiasts would do well to remember that new technologies do not make financial risk disappear,” the ECB official said. “It’s like squeezing a balloon on one side: it will change shape until it bursts on the other. And if the balloon is filled with hot air, it can go up for a while, but eventually it will burst.”
Panetta has already backed parts of the ECB’s plans for a possible digital euro, which the central bank is currently investigating. He has also proposed banning crypto assets with an “excessive ecological footprint” as part of efforts to address risks to the environment.
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