Fabio Panetta, a senior European Central Bank official, has argued that crypto markets cannot be trustless and stable without sufficient transparency and regulatory protections.
Panetta speaking at the London School of Economics on December 7th, Said The FTX implosion showed that cryptocurrency is a bubble waiting to burst at the right time. became.
Nonetheless, Panetta said the recent implosion may not be the demise of cryptocurrencies. He said it needs to be addressed.
On the crypto industry’s first flaw, Panetta argued that many crypto assets are unbacked and too volatile to have intrinsic value. As a result, they cannot be used for digital payments and serve only as speculative assets.
Regarding the stability of stablecoins, Panetta argued that cryptoassets (such as UST) cannot maintain a stable value based on code alone and are backed by regulated banks such as the ECB. did.
An ECB official noted that the widespread contagion that followed the collapse of Terra and FTX shows that the crypto market is highly leveraged and interconnected. It warned that allowing positions would spread the associated risks across the crypto market.
Regulation as Crypto Advances
Despite the fundamental flaws of the crypto market, Panetta argued that with the right regulatory measures, the economy could still take advantage of crypto finance.
First, Panetta recommends regulating the crypto market with similar measures that apply to other sectors of the financial market.
Regulatory frameworks like the EU’s Markets in Crypto-Assets (MiCA) ensure that stablecoin issuers obtain e-money licenses to regulate their reserves. Issuers of crypto assets are also required to inform investors of the inherent risks of purchasing assets.
Panetta added that there is a need for a global regulatory framework that protects consumers from manipulation of crypto assets and reduces the risk of future contagion, as crypto assets know no borders.