A blog post by Fabio Panneta of the ECB gave the view that trading in cryptocurrencies was akin to gambling, and should be treated as such by regulators.
According to Panneta, the recent collapse of the crypto market left investors with significant losses and raised concerns about the costs to society of an unregulated industry.
He called TerraUSD, a stablecoin that proved to be unstable, and said that it was one of the first casualties in a chain of failures that led to the collapse of several lending platforms, a hedge fund, a major crypto exchange, and a US-listed crypto mining company.
His belief is that other crypto companies may also be added to this list in the coming months, and that these failures highlight the high leverage and interconnectedness of the crypto ecosystem, as well as the lack of governance structures in place.
Regulation is a step in the right direction
He continues by stating that despite their fundamental flaws, it is not certain that crypto assets will ultimately self-destruct. He accuses unbacked crypto assets of having no intrinsic value and says that they are primarily used for speculative purposes rather than payments or funding consumption or investment. Instead, he maintains that they may, however, continue to be a vehicle for gambling in the digital era.
He says that the cost to society of an unregulated crypto industry is too high to ignore. In addition to causing significant losses for investors, unregulated crypto assets can be used for tax evasion, money laundering, terrorist financing, and sanctions evasion.
He believes that they also have a high environmental cost, and states that it is therefore crucial that regulatory gaps are addressed and the social costs of cryptos are addressed.
Panneta thinks that the EU’s Regulation on Markets in Crypto-Assets (MiCA) is a step in the right direction, but that more needs to be done to ensure that all segments of the industry are regulated, including decentralised finance activities such as crypto asset lending or non-custodial wallet services.
Crypto is gambling
He is of the view that unbacked crypto assets should be treated as gambling activities and regulated accordingly, with vulnerable consumers protected through principles similar to those recommended by the European Commission for online gambling.
He sees that global regulation is also necessary to prevent regulatory arbitrage and ensure that the recommendations of the Financial Stability Board and the Basel Committee for the treatment of banks’ exposures to crypto assets are implemented.
Fabio Panneta is an ardent opponent of cryptocurrencies and even though he maintains that they have not yet impacted on the traditional financial system, he is likely of the belief that they could eventually be rival forms of currency.
Publishing a blog that accuses the crypto sector of being a place for gamblers is not helpful. It belittles the truly innovative technologies that have come out of the industry and is aimed at scaring retail investors away.
If trading in cryptocurrencies is gambling, then trading in stocks, bonds, and all the other traditional financial assets must also be so. For such a high ranking official to be attempting to muddy the waters in such a way is surely puerile in the extreme.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.