A European Central Bank policymaker said cryptocurrencies derive their value from greed, on the same day a leading crypto player’s comments gave rise to a comparison with Ponzi schemes.
Fabio Panetta, member of the ECB’s executive board, told an audience at Columbia University that cryptos needed stronger oversight as he compared the industry to the Gold Rush. “Fast-forward a century and a half and, amid the global financial crisis, growing distrust of banks, coupled with technological innovation, gave rise to a new dream – a digital gold rush beyond state control,” said Panetta. But he said they’re not succeeding.
“Crypto-assets are bringing about instability and insecurity – the exact opposite of what they promised. They are creating a new Wild West.”
He said regulators need to act before the bubble bursts, “to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society. And it is time for policymakers to respond to the people’s growing demand for digital assets and a digital currency by making sovereign money fit for the digital age,” a reference to the digital currency projects many central banks are taking on.
The surge in crypto prices, he added, is leading consumers to a fear of missing out. “Like in a Ponzi scheme, 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,” said Panetta.
Panetta comments come on the same day that Sam Bankman-Fried, chief executive of crypto exchange FTX, was quoted on Bloomberg’s Odd Lots podcast describing the interest-rate projects many cryptos employ.
Bankman-Fried offered an explanation that amounted to crypto investors putting money into a box, leading other people to put money into that same box.
(That’s not an exaggeration — Bankman-Fried used the word “box” 38 times, according to the transcript.)
“I think of myself as like a fairly cynical person. And that was so much more cynical than how I would’ve described farming. You’re just like, well, I’m in the Ponzi business and it’s pretty good,” replied Bloomberg’s Matt Levine.
The market cap throughout the crypto industry was $1.8 trillion, according to Coinmarketcap. Bitcoin
was trading below $40,000.