Crypto should be treated as gambling, ECB board member says
European Central Bank (ECB) board member Fabio Panetta believes regulators should treat trading in unbacked crypto assets like gambling.
The ‘Buyer beware’ principle doesn’t apply in the crypto world
In an opinion piece for the Financial Times, outspoken ECB executive board member Fabio Panetta insisted that the principle of “buyer beware” or “caveat emptor” should not apply to crypto assets. Instead, regulators should treat trading in such products like gambling.
Panetta decried the terrible state of crypto in the past year when investors lost billions of dollars worth of digital assets due to the catastrophic failures of several crypto-based products and businesses, including the TerraUSD stablecoin, Three Arrows Capital (3AC), Celsius Digital, and FTX.
In Panetta’s opinion, the rapid succession of these failures highlighted the crypto ecosystem’s interconnectedness, the players’ highly leveraged activities in the space, and the weak governance structures anchoring the industry.
Because of this situation, many observers have called for authorities to let the entire crypto industry implode out of existence rather than expend time, energy, and resources to regulate and legitimize it.
Cryptocurrencies are speculative assets
However, Panetta cautioned against such thinking, claiming that crypto assets cannot be wished away because of their very nature. The ECB board member described crypto as “speculative assets,” often bought with the sole objective of being sold for a profit, essentially making them gambles disguised as investment instruments.
He stated that crypto has no significant social or economic function, as it’s still largely unused for payments and doesn’t fund consumption either.
According to Panetta, humankind has always gambled in one way or another, and crypto has become the gambling vehicle of choice for the digital age. He also insisted that if authorities left the crypto space unregulated, subsequent meltdowns could lead to significant losses for uninformed investors.
The Italian economist also wrote that criminals could use unregulated crypto assets for many illicit activities, including money laundering, tax evasion, circumvention of sanctions, and financing terrorist activities. Therefore, it is imperative that bodies responsible for overseeing the crypto industry fill up regulatory gaps and arbitrages as soon as possible to address the social cost of digital assets.
Panetta said authorities need to acknowledge the speculative nature of crypto assets to fill those regulatory gaps and “treat them as gambling activities.”
There’s a need to strengthen crypto regulations
Panetta lauded the EU’s Regulation on Markets in Crypto Assets (MiCA) as an essential step towards the responsible governance of the global crypto industry. However, he pointed out that regulators still had a lot of work to do, particularly in regulating lending and borrowing activities under decentralized finance (DeFi) protocols.
The ECB executive also supported calls for the global standardization of regulations and urged the finalization of recommendations made by the Financial Stability Board (FSB) to oversee crypto markets and activities.
The FSB published its recommendations on Oct. 11, 2022, to tighten worldwide regulation of crypto assets and global stablecoin (GSC) arrangements. While the recommendations dealt adequately with the threats to financial stability posed by GSC arrangements and digital assets, they did not explicitly address other concerns, including those related to consumer protection, data privacy, cyber security, and the financing of terrorism.
Panetta finished his piece by calling for central bank digital currencies (CBDC) to help bridge crypto’s shortcomings and build a solid foundation for the growing virtual economy. In his opinion, CBDCs will preserve the role of central banks in national and international digital finance ecosystems and safeguard payment systems upon which users of unbacked crypto depend.
