ECB Official Predicts Bleak Future for Cryptocurrencies

Fabio Panetta, a member of the executive board of the European Central Bank (ECB), has predicted a bleak future for cryptocurrencies, in which investors may use the digital assets for little more than wagering.

In prepared remarks for a panel at the Bank for International Settlements Annual Conference on June 23, Panetta predicted that investors’ perception of cryptocurrencies as a “robust store of value” would begin to erode in late 2021 and early 2022, when the total market capitalization would decline by more than $1 trillion.

According to the ECB official, the “highly volatile” nature of crypto assets makes them suitable for gambling, and global legislators should treat them accordingly.

“Due to their limitations, cryptocurrencies have not evolved into an innovative and robust form of finance; rather, they have mutated into a pernicious one,” said Panetta.

“The crypto ecosystem is riddled with market failures and negative externalities, and further market disruptions are inevitable unless proper regulatory safeguards are implemented.”

He added:

“Policymakers should be wary of supporting an industry that has so far produced no societal benefits and is increasingly trying to integrate into the traditional financial system, both to acquire legitimacy as part of that system and to piggyback on it.”

Panetta asserted that the “security, scalability, and decentralization” of crypto transactions were “not realizable,” citing the immutability of blockchains as a negative aspect of the industry due to the inability to rescind transactions.

He cited the demise of FTX and a recent lawsuit filed by the United States Securities and Exchange Commission against Binance as “fundamental shortcomings” of the ecosystem.

The ECB official stated, “Crypto enthusiasts would do well to remember that new technology does not eliminate financial risk.”

“It is like applying pressure to one side of a balloon: it will change shape until it bursts on the other side. “If the balloon is filled with hot air, it may rise for a time, but it will eventually burst.”

Panetta has previously supported portions of the ECB’s plans for a potential digital euro, which the central bank is researching.

In addition, he has proposed the prohibition of crypto assets with an “excessive ecological footprint” as part of efforts to mitigate environmental risks.