“They have no intrinsic value and generate no income”

Fabio Panetta, Governor of the Bank of Italy, warned about the risks of cryptocurrencies during the annual meeting of the Italian Banking Association (ABI). In a forceful speech, Panetta stressed the need for strict regulation to stabilize this developing market.

Crypto activity: risks and regulation

Panetta highlighted two main categories of crypto assets: stable coins And unsecured crypto assets. Stablecoinslike for example Holding strap And USD coinare linked to portfolios of real assets such as currencies and securities. These digital instruments are particularly vulnerable to “buyback races” in the absence of regulation. Unsecured crypto assetsincluding Bitcoin And etherhave no intrinsic value and generate no income. “They are traded in informal and opaque circuits without adequate controls,” Panetta said, adding that this is a highly risky speculative bet. BitcoinFor example, the value fluctuated from around $60,000 in April 2021 to less than $20,000 in June 2022, illustrating the extreme volatility.

European Regulation: MiCAR

The market in crypto asset regulation (MiCAR) was described as a step towards regulating the crypto asset market. MiCAR distinguishes between Electronic Money Tokens (EMT)whose value is tied to an official currency, and Asset-referenced tokens (ART)which are tied to multiple underlying assets. Only EMT and ART are considered stablecoins, with specific compliance requirements for intermediaries. Panetta announced that a communication to the market will be issued in the coming days to promote an application of MiCAR that maintains the functioning of markets and protects cryptocurrency holders. The Bank of Italy and Consob will be in charge of supervision under the new regulatory framework.

Impact on intermediaries and markets

The responsibility of intermediaries in the cryptocurrency market will increase significantly. They must ensure the technological and legal robustness of the platforms used and combat illegal transactions. They must comply with anti-money laundering and terrorist financing regulations. Intermediaries must also ensure that e-money Tokens (EMT), which can be issued by banks and e-money institutions, are always linked to the face value of the legal tender and offer holders a repayment guarantee.

Economic overview and future prospects

Panetta gave an overview of the economic situation in the Eurozone and Italy:

• GDP growthEconomic activity in the euro area grew by 0.3% in the first quarter of 2024.
• Manufacturing sectorIt remained sluggish, recording a decline of 0.5% compared to the previous quarter.
• External demandWith exports increasing by 1.2%, it was the main driver of growth.
• Domestic demandIt remains weak, with investments falling by 0.8%.

Inflation continues to fall and recorded an annual Interest rate of 3.1% in June 2024, down from 4.5% in March 2024. Future monetary policy decisions will need to take into account the impact of interest rate hikes in curbing demand, manufacturing activity and inflation. Lending slowed, with corporate loans down 2.3% and mortgages down 1.7%. The macroeconomic situation was supported by post-pandemic support measures. Italian households reduced their disposable debt-to-income ratio to 58.6%, one of the lowest in the world.

Conclusions and regulatory perspectives

Panetta concluded by noting that the final part of the regulatory framework set by the Basel Committee will come into force in 2025. Banks will have to adapt gradually, but uneven implementation of the regulations around the world creates competitive inequalities.