On April 25, Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB), pushed for stricter regulations on cryptocurrencies to avoid any kind of “instability and insecurity” on a financial level.
Speaking at Columbia University, Panetta referred to the accelerated growth the crypto market has achieved with a valuation of $1.3 trillion, indicating that it is currently larger than any market at high risk when the 2008 global financial crisis began.
The ECB Sees The Crypto Market as a Bubble Waiting to Pop
Panetta indicated that all this boom has been based on speculation and the promise of high and rapid returns, “exploiting regulatory loopholes that leave investors without protection.”
“We must not repeat the same mistakes while waiting for the bubble to burst, and only then realize how ubiquitous crypto risk has become in the financial system.”
Panetta acknowledges that although crypto assets are not just speculative and high-risk investments. Still, he argues that they can affect state policies and the world’s financial stability.
Panetta also explained that stablecoins pose a risk to nations – a position the ECB has previously shared – as those responsible for minting the tokens cannot guarantee “exchange at par at all times” and have no no access to “permanent facilities” offered by a central bank. He added that a third of stablecoins launched in recent years have not survived.
Volatile Cryptocurrencies Cannot Fulfill Their Purpose
According to Panetta, the volatility and lack of proper backing prevent crypto assets from fulfilling their purpose, which is to facilitate payments or become a better version of traditional money. Panetta pointed at the 60% drop that Bitcoin had after reaching $68,000, which was higher than that of gold and four times higher than that of U.S. stocks.
“[Cryptocurrencies] are simply too volatile to fulfill the three functions of money: medium of exchange, store of value and unit of account.
Due to the accelerated adoption of the global cryptocurrency ecosystem, Panetta proposes a greater control in the global regulatory approach. He expressed his concerns about how even countries that have banned crypto cannot ensure their mandates are 100% effective.
“We need globally coordinated regulatory action to address issues such as the use of crypto-assets in illicit cross-border activities or their environmental footprint. Regulation should balance the risks and benefits so as not to stifle innovation that could drive the efficiency of payments and wider applications of these technologies.”
Panetta focused on 4 relevant points to achieve better control over crypto assets:
- Hold them to the same standards as the rest of the financial system.
- Tax them adequately since the current tax treatment is minimal.
- Strengthen public disclosure.
- Introduce strict transparency requirements and standards to be followed by professional operators.
Therefore, this new regulation does not seek to stifle innovation but to protect citizens’ money and savings. But it would also go a long way to ensuring that central banks don’t lose the economic control they’ve had for years.
