ECB Board Member Says Crypto is ‘House of Cards’

https://www.pymnts.com/cryptocurrency/2022/ecb-board-member-says-crypto-is-house-of-cards/

Regulation and a better alternative are the answers to the current turmoil in the crypto market. 

So said Fabio Panetta, a member of the executive board of the European Central Bank (ECB), in a Wednesday (Dec. 7) speech at the London Business School. 

The crypto market has several problems, but because people like to gamble, it’s not going away. 

“We therefore need to mitigate the risks, while harnessing the innovative potential of digital finance beyond crypto,” Panetta said. 

Events like the crash of the TerraUSD stablecoin and the bankruptcy of crypto exchange FTX and its 130 affiliated companies happened over just days, pointing to their instability. 

They also revealed that some crypto firms’ business and governance practices are “unbelievably poor,” some investors have not done due diligence and that crypto is a “house of cards,” Panetta said. 

“The crash has served as a cautionary reminder that finance cannot be trustless and stable at the same time,” Panetta said. “Trust cannot be replaced by religious faith in an algorithm. It requires transparency, regulatory safeguards and scrutiny.” 

Panetta also said that crypto assets have three fundamental flaws: unbacked crypto assets offer no benefits to society, stablecoins are exposed to runs and crypto markets are highly leveraged and interconnected. 

Still, crypto assets will continue to be used because people like to gamble. 

That being the case, Panetta said regulation and taxation must focus on protecting inexperienced investors and preserving the stability of the financial system. 

There is an “urgent” need to do so because the links between the crypto market and the financial sector may become stronger. 

Beyond that, there’s also a need to provide digital asset settlement that is free of risk and dependable, so that the possibilities of digital technologies are realized. 

“And that is why the ECB is working on a digital euro while also considering new technologies for the future of wholesale settlement in central bank money,” Panetta said. 

Panetta’s speech comes a week after two advisers to the ECB said in a blog post that bitcoin is unsuitable as a means of payment or an investment asset and is “on the road to irrelevance.”