Fabio Panetta, official of the European Central Bank (ECB), also warned about volatility.
The European Union (EU) recently established a clear regulatory framework for digital assets, (MiCA). However, not everyone is convinced. One of them is a member of the ECB board of directors, Fabio Panetta, who once again expressed his rejection of cryptocurrencies.
Panetta claims that virtual currencies such as Bitcoin have a unique utility as a means of gambling. He further warns that regulations are overvaluing this sector.
To his criticisms he added the classic theories about the contamination of the digital mining industry and volatility. Although the latter is a fact, there are doubts that these assets are volatile by nature, or that this is due to the lack of maturity that being in its infancy implies.
The Reasons for Panetta’s Rejection of Cryptocurrencies
As already mentioned, volatility is one of the main backgrounds of the official’s rejection of the cryptocurrency sector. But there are others that he recently highlighted. Such is the case of one of the characteristics of the blockchain, which makes it impossible to reverse transactions.
For him, the future of digital currencies and their investors is more than problematic. In his opinion, these assets will end up as gambling chips once the market realizes that most of the characteristics with which they are sold do not exist.
Writing for the Bank for International Settlements Annual Conference on Friday, the official pointed at some “misperceptions.” For example, he said that the vision of virtual currencies as stores of value was belied by the facts. In 2021 and 2022, the crypto market suffered waves of strong volatility, with some coins losing up to 90% of their value. This is something that is not at all what investors are looking for in a reserve asset, he hinted.
The official believes that the “implied in nature” high volatility of virtual currencies should lead to them being treated as gambling. In his opinion, legislators around the world should see them that way. Therefore, Panetta’s rejection of cryptocurrencies does not depart from the standard discourse of detractors of that industry.
A Harmful Form of Innovation
Panetta considers that cryptocurrencies, despite being considered as innovative, are not robust; hence the need for regulators to take the necessary measures to avoid further damage.
He warned regulators to be careful about supporting an industry that has so far “produced no social benefits.” In addition, he said that these assets are increasingly trying to integrate with the traditional system to take advantage of it. On the other hand, he stressed that the decentralization, scalability and security of digital currencies “are not achievable.”
Panetta’s rejection of cryptocurrencies extends to its underlying technology, the blockchain. In this sense, he stressed that the immutability of the blockchain is a negative aspect of the space, since transactions are reversible.
Despite Panetta’s vehemence in his opinion, many of the official’s arguments against cryptocurrencies are debatable, considering, for example, the Juicy Fields case, which demonstrated the uselessness of the traditional banking system in reversing transactions.
On the other hand, Panetta’s argument that cryptocurrencies “have not produced social benefit” is contradicted in the case of underdeveloped countries, where financial weakness and the instability of local currencies can be addressed through the use of digital currencies.
By Marina Meza
