Fabio Panetta, member of the Board of the European Central Bank (ECB), has been harshly critical of cryptocurrencies, describing these assets as highly volatile, inefficient and centralized.
He also warned policymakers not to support an industry that, in his view, has so far provided no social benefits and is increasingly trying to integrate into the traditional financial system.
Speaking at a panel on the future of crypto at the 22nd BIS Annual Conference held on June 23, 2023, Panetta argued that cryptos are not transforming into an innovative and robust form of finance, but instead into a harmful form of finance.
He said that the crypto ecosystem is riddled with market failures and negative externalities and will experience further market turmoil unless appropriate regulatory measures are taken.
Panetta opposed technology replacing trust, the core promise of cryptos, arguing that the concept of "code is the law" would not allow for the emergence of a self-regulating system free from human judgment and error.
He argued that fiat cryptos have made no progress in the traditional role of money and are increasingly moving away from their original goal of decentralization, relying more and more on centralized solutions and market structures. He also said that in addition to becoming speculative assets, they have become a means of circumventing capital controls, sanctions or financial regulation.
Noting the inefficiency and risks of crypto transactions on blockchains facing the blockchain trilemma, Panetta stated that it is not possible to achieve the goals of optimum security, scalability and decentralization at the same time. He also argued that recent crypto bankruptcies show that risk in itself is technology-independent and that new technology does not eliminate financial risk.
Panetta urged regulators to subject cryptos to strict regulatory standards, address their social costs, and treat unsound crypto models as they really are, as a form of gambling. He said this could prompt the ecosystem to make more efforts to provide real value in digital finance.
Panetta has been a member of the ECB Board of Directors since 2020. Responsible for International and European Relations, Market Infrastructure and Payments and Banknotes. He previously served as Senior Vice President of Banca d'Italia.
*Not investment advice.