Fundamental Flaws in Crypto Finance: ECB Executive Board Member. 

• Executive board member of the ECB, Dr. Fabio Panetta, was speaking at the “Insight Summit.” held at London Business School (LSB)
• He believes only central banks can provide risk-free and dependable digital settlement assets. 
• DG-MIP at ECB, Ullrich Binsiel also shared his thoughts on Bitcoin. 

There prevails a massive distrust toward crypto among retail investors and the general public. The reasons are the ongoing crypto winter, FTX’s collapse among other shocks this year. Dr. Fabio Panetta, a member of the Executive Board of the European Central Bank (ECB), openly discussed crypto finance during a speech at the ‘Insight Summit’ held at London Business School (LSB).

The speech was titled “Crypto dominos: the bursting crypto bubbles and the destiny of digital finance.” Panetta mentioned the recent bankruptcies in the market in 2022. He suggested that crypto dominos are falling, sending shockwaves throughout the crypto universe. These also include Decentralized Finance (DeFi) and stablecoins. 

Panetta firmly believes that finances can never be trustless and stable simultaneously. And that the market requires transparency, scrutiny and regulatory safeguards. 

According to Panetta, there is a dire requirement for a couple of things that can both protect inexperienced investors and also preserve the stability of the financial system.

• To ensure that the crypto assets are subjected to adequate taxation and regulations. 
• Only the central bank can provide a dependable and risk-free digital settlement asset.

Furthermore, he hypothesized that the associated risk with crypto finance has three fundamental flaws. 

• Unbacked Crypto assets provide no benefits to society.
• Stablecoins are also exposed to runs,
• The crypto markets are highly interconnected and leveraged. 

Ullrich Bindseil, Director General for Market Infrastructure and Payments (DG-MIP) at ECB, shared his thoughts on Bitcoin on November 30.

ECB uses the Euro and is the European Union countries’ central bank. With the main motive for maintaining price stability by ensuring the inflation rates remain predictable, low and stable.

Ullrich’s comments were made in a BlogSpot, published earlier today, jointly written by Jurgen Schaaf, advisor to Senior Management of ECB’s Market Infrastructure and payment business area.

The blog said Bitcoin was created to overcome the existing financial and monetary system. Pseudonymous Satoshi Nakamoto published the concept in 2008. Since then, BTC was marketed as a global decentralized digital currency. However, its conceptual design and technical shortcomings make it ambiguous as a mode of payment. Also, when one tries actual BTC transactions, it’s cumbersome, expensive and slow. The largest cryptocurrency by market cap has never been used for significant and legal real-world transactions. 

Huge investors tend to fund the lobbyists to push their case along with regulators and lawmakers. In the US alone, the number of crypto lobbyists tripled from 115 in 2018 to 320 in 2021.

Such lobbying activities require a soundboard for impact. Certainly, lawmakers sometimes facilitated the influx of funds by supporting the supposed merits of BTC and offered regulations that give the impression that crypto assets are nothing more than just another asset class. Also, the risks of crypto assets are highly undisputed among regulators. The Financial Stability Board (FSB) called for the crypto market and assets to be subject to effective regulation and supervision compatible with imminent risks. Also, the doctrine of the same risk and same regulation. 

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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