On April 25, 2022, European Central Bank Executive Board member Fabio Panetta delivered a speech at Columbia University in New York in which he was very critical of cryptoassets. As indicated in the title of the speech — “For a Few Cryptos More: the Wild West of Crypto Finance” — Mr. Panetta compared cryptocurrencies to the Wild West gold rush in the United States in the second half of the 19th century (while also working in a reference to Littlefinger, of Game of Thrones fame). The ECB’s point person on crypto regulation, Mr. Panetta compared the dynamics of the cryptocurrency market to a Ponzi scheme. The introductory parts of his remarks ended with the following:
So crypto-assets are speculative assets that can cause major damage to society. At present they derive their value mainly from greed, they rely on the greed of others and the hope that the scheme continues unhindered. Until this house of cards collapses, leaving people buried under their losses.
Mr. Panetta identified the following three channels of financial stability risk, even though he also acknowledged that linkages through the three channels are as yet still limited. First, stress in cryptoasset markets could spill over to players in the wider financial system through direct asset holdings or ownership of service providers. Second, a fall in the value of cryptoassets might have an impact on the wealth of investors, with knock-on effects on the financial system. Third, a loss of faith in the…
