Crypto assets are here to stay so their regulation is urgently needed to protect investors and the stability of the global financial landscape, European Central Bank board member Fabio Panetta said on Wednesday.
Crypto investors suffered a series of blows this year from the collapse of the FTX exchange, to the crash of stablecoin TerraUSD and the decline of Bitcoin.
“This is not just a bubble that is bursting. It is like froth: multiple bubbles are bursting one after another,” Panetta said in a speech in London. “Investors’ fear of missing out seems to have morphed into a fear of not getting out.”
Unbacked crypto assets are a form of financial gambling without any socially or economically useful function, so the task is to thwart criminal activity, protect unassuming investors and save a financial system that may become increasingly intertwined with crypto assets, Panetta said.
Even stablecoins, which are supposed to keep their value through ties to a pool of assets, are stable in name only, Panetta said.
“But these flaws alone are unlikely to spell the end of cryptos,” Panetta said. “Gambling is perhaps the second oldest profession in the world.”
The links between the crypto market and the financial system could strengthen, especially if major tech companies enter the sector, meaning regulation is urgently required, Panetta said.
Regulatory efforts should be directed primarily at preventing the use of crypto-assets to circumvent financial regulation and in shielding the mainstream financial system from crypto risks, Panetta said.