A European Central Bank executive board member has levelled a blistering attack on the cryptocurrency market, calling it “a new Wild West” that is “bringing about instability and insecurity” in financial markets and could start a new financial crisis.
n a speech at New York’s Columbia University, Fabio Panetta likened aspects of crypto investing to those of a Ponzi scheme, saying “it only takes a few to climb high on the ladder – even if their gains are only temporary – to convince many others that they are missing out”
He also said crypto markets now exceed the size of the sub-prime mortgage market that triggered the financial crisis of 2008 and that crypto “shows strikingly similar dynamics”.
“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,” he told the Ivy League audience.
“And while some may hope to be smarter and get out in time, many will be trapped.”
He went on to assail cryptocurrencies as the domain of unscrupulous actors and criminals that is legitimised by media hype, social media herd mentality and the fear of missing out.
“This strong appeal of crypto-assets, especially unbacked ones, is a cause for concern given the lack of fundamentals, the number of recent scandals[13], their use in illegal activities and the high volatility of their prices,” he said.
“All this points to unsound underlying market dynamics.”
He said that crypto-assets like bitcoin could never successfully replace ordinary currencies as money due to their volatility and lack of regulatory supervision.
He continued by detailing the use of cryptocurrencies as a medium of money laundering and tax evasion by organised crime, terrorism and corrupt governments such as North Korea.
He called for a coordinated global effort to bring cryptocurrencies to heel by taxing them heavily, subjecting them to intense regulatory scrutiny and by imposing strict transparency requirements.
He said that unsupervised peer-to-peer transactions would have to end to help secure financial stability, given that more than $3trn was at stake in the market worldwide.
