In a sudden turn of events, European Central Bank (ECB) board member has highly criticised the crypto sector and the larger aspects of blockchain technology. The ECB executives have often been skeptical of cryptocurrencies and the recent comment highlights the same.
According to Fabio Panetta, an executive board member of the ECB, the volatility of crypto and aspects of blockchain technology made digital assets only suitable for gambling. He suggested a dark future for cryptocurrencies, in which the digital assets may be used for little more than gambling among investors.
In written remarks for a panel at the Bank for International Settlements (BIS) Annual Conference on Friday, Panetta said crypto’s perception among investors as a “robust store of value” began to dissipate in late 2021 and into 2022, when the total market capitalization fell by more than $1 trillion.
He added that due to their limitations, cryptocurrencies have not developed into a form of finance that is innovative and robust, but have instead morphed into one that is deleterious. Panetta added that the crypto ecosystem is riddled with market failures and negative externalities. He anticipated that it is bound to experience further “market disruptions unless proper regulatory safeguards are put in place.
According to the ECB official, the “highly volatile” nature of crypto assets made them suitable for gambling, and should be treated as such by global lawmakers. He added:
Policymakers should be wary of supporting an industry that has so far produced no societal benefits and is increasingly trying to integrate into the traditional financial system, both to acquire legitimacy as part of that system and to piggyback on it.
Further, Panetta claimed the “security, scalability and decentralisation” of crypto transactions was “not achievable.” He added the immutability of blockchains as a negative aspect of the space due to transactions often being unable to be reversed.
He cited the collapse of FTX exchange as well as a recent lawsuit brought by the United States Securities and Exchange Commission (SEC) against Binance as “fundamental shortcomings” of the ecosystem. Panetta targeted crypto enthusiasts and said that they would do well to remember that new technology does not make financial risk disappear. He added:
It is like pressing a balloon on one side: it will change in shape until it pops on the other side. And if the balloon is full of hot air, it may rise for a while but will burst in the end.
Panetta has previously also equated crypto sector with gambling and criticised cryptocurrencies. Additionally, he has backed parts of the ECB’s plans for a potential digital Euro, currently being researched by the central bank. He has also proposed banning crypto assets with an “excessive ecological footprint” as part of efforts to address risks to the environment.
However, Europe has received global attention for its crypto regulation. It is among the global jurisdictions which has received appreciation for having a well balanced crypto regulations in Markets in Crypto Assets (MiCA) regulation.