ECB says crypto assets represent a risk to financial stability (Cryptocurrency:BTC-USD)

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The European Central Bank is ramping up its warnings of the crypto market, deflating further sentiment that has plagued the industry over the past six months. Flagship crypto Bitcoin (BTC-USD) slid another 4% to under the $29,000-level early Tuesday, adding to its 57% loss seen since a high of $67,802 recorded back in November. The latest warnings came as part of the ECB’s Financial Stability Review following similar caution expressed by regulators in the U.K. and the U.S.

Excerpt: “Investors have been able to handle the €1.3T fall in the market capitalization of unbacked crypto assets since November 2021 without any financial stability risks being incurred,” the ECB said in its review. “However, at this rate, a point will be reached where unbacked crypto assets represent a risk to financial stability. Given the speed of crypto developments and the increasing risks, it is important to bring crypto assets into the regulatory perimeter and under supervision as a matter of urgency.”

Earlier this week, ECB president Christine Lagarde told Dutch television that crypto assets were “worth nothing, based on nothing and there is no underlying asset to act as an anchor of safety.” Last month, ECB executive Fabio Panetta, also compared the sector to a Ponzi scheme, calling for a regulatory crackdown to prevent a lawless frenzy of risk-taking. “Such dynamics can only continue as long as a growing number of investors believe that prices will continue to increase and that there can be fiat value unbacked by any stream of revenue or guarantee. Until the enthusiasm vanishes and the bubble bursts.”

Go deeper: Despite skepticism about decentralized currency and stablecoins, the ECB is still interested in rolling out a digital euro, otherwise known as a central bank digital currency. In the case of CBDCs, the government is the counterparty and takes liability for the money, “so the central bank will be behind it and I think that is vastly different from any of those things,” Lagarde noted. The central bank hopes to build a CBDC prototype for testing by 2023, before deciding whether to launch it three years later.

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