A senior European Central Bank official has launched a tirade against cryptocurrencies, likening them to a “Ponzi scheme” and calling for a regulatory clampdown to avoid a “lawless frenzy of risk-taking”.
Fabio Panetta, the executive board member who oversees the ECB’s work on a digital euro, appealed for “co-ordinated efforts at the global level to bring crypto assets into the regulatory purview” by increasing taxation, tightening rules against money laundering and improving disclosure in the fast-moving market.
The central bank has little power to clamp down on the market except through its role in supervising major eurozone banks and overseeing financial stability.
Officials have criticised cryptocurrencies before, but Panetta’s comments represent an escalation of the ECB’s campaign against crypto assets, such as bitcoin and Ethereum, which have proliferated in recent years and have a combined market value of more than $1.8tn, according to CoinMarketCap.
“Crypto assets are speculative assets that can cause major damage to society,” Panetta said. “At present they derive their value mainly from greed, they rely on the greed of others and the hope that the scheme continues unhindered . . . until this house of cards collapses, leaving people buried under their losses.”
While crypto assets comprise only 1 per cent of total global financial assets, Panetta noted they have become bigger than the market for US subprime mortgages was in 2008, when its collapse triggered a financial crisis.
“We must not repeat the same mistakes by waiting for the bubble to burst, and only then realising how pervasive crypto risk has become in the financial system,” said Panetta, warning that “high-net-worth investors, financial advisers and family offices are now leading the charge to invest in crypto assets”.
“Like in a Ponzi scheme, such dynamics can only continue as long as a growing number of investors believe that prices will continue to increase and that there can be fiat value unbacked by any stream of revenue or guarantee . . . until the enthusiasm vanishes and the bubble bursts,” he said.
Warning that little capital gains tax was paid on crypto assets and they were often used to evade taxes, Panetta said: “There could also be a case for higher taxation of some crypto assets . . . above and beyond the taxation of other financial instruments.”
Bitcoin’s price has fallen from nearly $69,000 in November to just under $40,000 on Monday. Panetta said this high volatility made crypto assets unsuitable as a means of payments or as a store of value for households.
Citing research that found $72bn of transactions involving crypto assets — more than a fifth of the total — is associated with criminal activities each year, Panetta also said crypto trading using the rouble had increased after sanctions were imposed on Russia this year.
The EU is finalising legislation, dubbed “markets in crypto assets”, which is due to be implemented over the next two years. But Panetta said “Europe’s regulatory measures need to go further” including tackling “unbacked crypto asset activities that are undertaken without service providers”.
“In addition we cannot afford to leave on-chain peer-to-peer payments unregulated, as they can be used to circumvent any regulation,” he said, adding that Europe’s planned anti-money laundering authority should supervise crypto asset providers.
