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In a recent address at Columbia University in New York, Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB), said that a growing distrust of banks and technological innovation have led to a new, digital gold rush beyond state control, 150 years after Americans pushed westward in search of fortune.

The high-ranking ECB official noted in his speech, which was published this week by the eurozone's monetary authority under the title "For a few cryptos more: the Wild West of crypto finance," that the cryptocurrency market is now larger than the $1.3 trillion sub-prime mortgage market in 2008, which triggered the last global financial crisis. He compared the dynamics to a Ponzi scheme, saying:

"Crypto evangelists promise heaven on earth, relying on an illusory narrative of ever-rising crypto asset prices to keep inflows and hence the crypto bubble's momentum going. However, appearances can be deceiving. Satoshi Nakamoto's ambition of producing reliable money remains a pipe dream."

Panetta went on to say that cryptocurrency transfers can take hours to complete and that the prices of digital assets like bitcoin and ether fluctuate wildly. He also mentioned that the "ostensibly anonymous transactions create an unchangeable trail that may be followed."

The bulk of crypto holders, according to the banker, rely on middlemen, which goes against the principle of decentralized finance. "Crypto assets are causing insecurity and instability, which is the polar opposite of what they promised." Fabio Panetta remarked, "They're building a new Wild West."

Global Efforts to Regulate Crypto Assets Suggested by ECB Executive

When "this house of cards collapses, leaving people buried under their losses," Fabio Panetta believes that cryptocurrencies, as speculative assets, might inflict "great damage to society." He advised governments around the world not to make the same mistakes they did in the past by waiting for the bubble to collapse before realizing "how ubiquitous crypto risk has grown in the financial system."

The ECB official emphasized, "We need to make coordinated efforts at the global level to bring crypto assets into the regulatory scope." He also proposed that regulators ensure that cryptocurrencies are held to the same standards as the traditional financial system. He went on to say:

"We'll have to deal with complicated trade-offs while doing so, balancing the aims of stimulating innovation, maintaining financial stability, and assuring consumer protection. If we want to prevent crypto assets from triggering a lawless risk-taking frenzy, we need to move faster."

This, however, would not be enough, according to the CEO, as market growth in the crypto field has demonstrated a growing desire for digital assets and rapid payments. Central banks should fulfill it by updating wholesale financial infrastructures and striving to issue central bank digital currencies, according to public authorities (CBDCs).

The European Central Bank, according to Panetta, is a leader in these areas. "We're focused on a digital euro to allow citizens to use sovereign money to make payments everywhere in the euro area while maintaining its role as an anchor for the payment and monetary system," said the ECB board member in charge of the project's progress.

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