Fabio Panetta, a key figure on the Executive Board of the European Central Bank (ECB), has painted a rather somber forecast for the future of cryptocurrencies, likening them more to a gamble than a valuable investment opportunity for traders.
Cryptocurrencies: The Deceptive Store of Value
During his discourse at the Bank for International Settlements Annual Conference on June 23, Panetta commented on the ever-changing perception of cryptocurrencies amongst investors. He emphasized that the notion of cryptocurrencies as a reliable “store of value” started to fade towards the end of 2021 and continued to wane into 2022, marked by a drastic drop of more than $1 trillion in total market capitalization. Given their inherent volatility, he asserted, cryptocurrencies seem better suited for high-risk wagering and should be subjected to corresponding legislative scrutiny.
“Cryptocurrencies have not flourished into an innovative and resilient financial instrument as anticipated. Instead, they have metamorphosed into something that could be detrimental,” Panetta warned. He depicted a crypto environment replete with market inconsistencies and detrimental outcomes, arguing for implementing rigorous regulatory measures to prevent further market turmoil.
Warnings to Policymakers: Crypto Industry in the Crosshairs
He elaborated, “Policymakers should exercise caution before endorsing an industry that has, until now, shown scant societal benefits and is aggressively attempting to amalgamate with the traditional financial system, for legitimizing its role within the system and to take undue advantage of it.”
Dismissing the touted “security, scalability, and decentralization” of crypto transactions as a fallacy, Panetta highlighted the inability to reverse blockchain transactions as a considerable downside to the sector. Citing the downfall of FTX and the recent lawsuit against Binance by the United States Securities and Exchange Commission, he indicated these instances as inherent flaws of the crypto ecosystem.
“Crypto enthusiasts must bear in mind that emerging technology doesn’t eliminate financial risks,” cautioned the ECB authority. “Much like when a balloon is compressed on one side, it alters its shape until it bursts on the other. And if the balloon is filled with nothing but hot air, it may ascend momentarily but is bound to rupture eventually.”
Panetta’s Prior Endorsement and Future Proposals
In the past, Panetta has supported certain aspects of the ECB’s exploration of a potential digital euro. Moreover, he has proposed the prohibition of crypto assets that leave an excessive environmental footprint, contributing to the global efforts to mitigate environmental risks.
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