Bitcoin and Ethereum ‘Have No Intrinsic Value’, Claims Governor of Italy’s Central Bank

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As a crypto investor with a few years of experience under my belt, I find Fabio Panetta’s speech at the Italian Banking Association Annual Meeting both informative and concerning. His distinction between stablecoins and unbacked crypto-assets was enlightening, as it helped clarify the risks associated with each category.

On July 9, 2024, Fabio Panetta, the Governor of the Bank of Italy, spoke at the Italian Banking Association’s annual meeting. He expressed his concerns about crypto-assets during his address. In his detailed analysis, Panetta distinguished between stablecoins and unbacked crypto-assets, shedding light on the risks associated with each category (Panetta). Furthermore, he discussed the European Union’s Markets in Crypto Assets Regulation (MiCAR) and its implications for the regulatory landscape surrounding crypto-assets (Panetta).

Panetta kicked off his speech by highlighting the varied characteristics of crypto-assets, distinguishing between stablecoins and unbacked digital currencies. In his perspective, stablecoins such as Tether and USD Coin function as digital instruments, with their value pegged to a reserve of assets including currencies, deposits, and securities. Panetta issued a cautionary note that without proper regulations in place, these stablecoins could become vulnerable to “redemption rushes” if their users lose faith in them.

Panetta changed his attention towards decentralized digital currencies, such as Bitcoin and Ethereum, which he pointed out don’t have the support of a particular institution and don’t possess inherent worth. He underlined that these assets don’t yield income in the form of coupons or dividends, but rather come into existence through complex computational processes. Panetta emphasized that since the value of decentralized digital currencies isn’t insured by any organization or backed by any tangible or financial asset, they carry significant risk and volatility.

As an analyst, I’d put it this way: According to Panetta, unregulated cryptocurrencies are frequently exchanged on obscure and unsupervised markets with insufficient safeguards. He raised alarm that these assets are mostly in the possession of traders seeking to cash in on price hikes, while some may also be attempting to circumvent tax laws and anti-money laundering regulations. In essence, Panetta drew a parallel between these unsecured digital assets and high-risk speculative contracts, whose values can experience dramatic swings due to the absence of any underlying economic foundations.

Panetta admitted that the number of investors holding unsupported cryptocurrencies is relatively small at present but could surge, as seen during the pandemic, particularly in developing countries. To mitigate these risks, Panetta brought up the European Union’s decision to enact MiCAR, a regulatory system scheduled for completion this year. Panetta mentioned that Banca d’Italia and Consob would assume oversight responsibilities under this framework to ensure adherence to the new regulations.

Panetta clarified that the MiCAR classification separates digital tokens into three groups: electronic money tokens (EMTs), asset-referenced tokens (ARTs), and other unsecured crypto-assets and utility tokens. EMTs and ARTs, as they are linked to real assets, are referred to as stablecoins under MiCAR, while the remaining categories encompass unbacked cryptocurrencies and utility tokens. According to Panetta’s explanation, MiCAR sets distinct rules for EMTs and ARTs but only requires prior notification for unbacked crypto-assets and utility tokens, resulting in a more limited regulatory reach.

Panetta commended MiCAR for bringing a degree of structure to the crypto-asset market, yet acknowledged that its impact could be limited due to the intricacy and constantly shifting nature of the challenges. He issued a caution about dealing with stablecoins on questionable trading platforms, particularly those situated outside Europe, as potential hazards may extend beyond the purview of individual token issuers. MiCAR’s new responsibilities for financial intermediaries were underscored by Panetta, encouraging them to stay vigilant regarding both financial and operational risks.

As a crypto investor, I strongly believe that the role of financial intermediaries is crucial in ensuring the security and reliability of the underlying technology in the crypto space. It’s essential for them to implement robust systems to prevent illicit transactions and comply with regulations such as anti-money laundering (AML) and counter-terrorist financing (CTF). This includes adhering to international sanctions and aligning organizational structures accordingly. Furthermore, I encourage crypto-asset operators to hire experienced professionals and establish effective control functions from the outset of new initiatives. By doing so, we can collectively create a more secure and trusted environment for cryptocurrency investments.

As an analyst, I would summarize Panetta’s remarks as follows: I concluded that only Electronic Money Transfer Systems (EMTs) can effectively serve as means of payment and uphold public trust due to their connection to legal tender currencies and the regulations ensuring par value redemption. I urge caution when using Alternative Retail Payment Systems (ARTs) without careful consideration of potential risks. Banca d’Italia will soon issue a communication to simplify MiCAR implementation, with the goal of preserving market functionality and safeguarding ART holders.

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2024-07-10 09:57