ECB Steps Up Warnings About Crypto Risks -Breaking
- The eurozone’s cryptocurrency market is still growing despite warnings by the European Central Bank.
- It asks all legislators to immediately regulate cryptocurrency, before it’s too late or the bubble bursts.
- According to the ECB President, digital currencies do not have economic value.
The European Central Bank has intensified its warnings about the dangers of investing in cryptocurrencies or other digital assets, at a moment when it is facing its most severe crisis. These warnings were launched in the ECB’s Financial Stability Review document, which the credit institution presented this week.
The ECB’s warnings are in tune with calls from UK and US regulators, as well as the International Monetary Fund (IMF). Since cryptocurrencies are a risky asset, both for their users as well as the global financial system as a whole, it is important that they be licensed as quickly as possible.
Cryptocurrencies Are “Worth Nothing”
ECB President Christine Lagarde declared on Dutch television on Monday that and other cryptocurrencies are “worth nothing.” Lagarde called on lawmakers around the world to regulate digital currency trading to protect inexperienced investors.
“My very humble assessment is that it is worth nothing,” Lagarde said of cryptos. “It is based on nothing. There is no underlying asset to act as an anchor of safety,” she added.
The report of the European bank points out that “crypto-assets lack intrinsic economic value or reference assets, while their frequent use as an instrument of speculation, their high volatility and energy consumption, and their use in the financing of illicit activities make crypto-assets high-risk instruments.”
The banking entity fears that in addition to raising “concerns about money laundering, market integrity and consumer protection,” cryptocurrencies may “have implications for financial stability.”
But the Market Continues to Grow…
It is paradoxical that despite warnings by regulators and other international financial institutions, the growth of cryptocurrency use and trading has not stopped.
“Despite the risks, investor demand for crypto-assets has been increasing,” the ECB report highlights.
“This exuberance stems from, among other things, perceived opportunities for quick gains, the unique characteristics of crypto-assets (…) compared with conventional asset classes, and the benefits perceived by institutional investors with regard to portfolio diversification,” adds the document.
The report also includes a survey by the ECB that showed at least 10% have cryptocurrencies. According to this study, educated young people are the most passionate about crypto.
It is the same situation in America for millennials. CNBC News Network published December’s study that showed 83% preferred cryptocurrency investments to the nation’s richest millennials.
Regulating is Essential Before the Bubble Bursts
The European stability review document states that “Investors have been able to handle the €1.3 trillion fall in the market capitalisation of unbacked crypto-assets since November 2021 without any financial stability risks being incurred.”
But it warns that “at this rate, a point will be reached where unbacked crypto-assets represent a risk to financial stability. Due to the fast development and growing risks of crypto, it’s important that all crypto assets are brought into compliance with regulatory requirements and placed under supervision immediately.
Not only regulators are voicing increasing criticisms and warnings regarding investments in digital assets, but so too is the public. Also last week, Wall Street investor Bill Ackman compared the collapse of – Luna to a “pyramid scheme.”
This dynamic can only be sustained as long as an increasing number of investors believes that prices will rise and there is fiat value that can’t be backed up by revenue streams or guarantees. Fabio Panetta from the ECB’s executive committee said last month that the bubble will burst unless the excitement fades.