The Central Bank of Ireland has published a blog post on the need for caution and regulation in the crypto space. Despite low exposure to the sector, the bank will continue to exercise caution regarding the advantages and risks of crypto, according to Governor Gabriel Makhlouf. Makhlouf also made a distinction between “backed” and “unbacked” cryptocurrencies, acknowledging the potential of the former under the EU’s new regulatory framework.
He welcomed the EU’s Markets in Crypto Assets Regulation (MiCA) as an important step in the regulation of crypto activities. The MiCA regulation is a significant step forward for the European Union’s cryptocurrency sector, as it aims to establish uniform regulations and standardise rules for digital assets there. This will ease the compliance burden on the sector’s businesses, which currently have to comply with 27 different regulatory frameworks across the EU’s member states.
However, Makhlouf believes that “unbacked” cryptocurrencies require a significantly more careful approach, likening purchasing them to buying a lottery ticket. He further described Bitcoin as a “Ponzi scheme” rather than an investment.
You might win, but you probably won’t
Gabriel Makhlouf, Governor of the Bank of Ireland.
Ultimately, the governor concluded that the crypto market must be regulated like other financial markets. This can be achieved by imposing certain rules on the treatment of user funds, disclosures, risk management, governance, and information exchange.
The cautious approach of the Central Bank of Ireland is in line with the views of many global regulators who have been seeking to regulate the use of cryptocurrencies. While some governments have been very crypto-friendly, others have raised concerns about the risks posed by the burgeoning industry.
Crypto regulation has been a hot topic in recent years, with governments and central banks grappling with how best to regulate this new asset class. The EU’s MiCA legislation is the most comprehensive crypto regulatory framework to date, but it will not be fully implemented until the start of 2025. In the meantime, the Central Bank of Ireland will continue to exercise caution and monitor developments in the crypto space.
The bank’s cautious stance is not unexpected, given the volatile nature of cryptocurrencies and the potential risks they pose to consumers. However, it remains to be seen whether other global regulators will take a similarly cautious approach or whether they will adopt a more liberal stance towards the crypto space.