With the world of cryptocurrency now more popular than ever, many have called for the decentralised financial platform to face heavy regulation. As the latest in a long line of orders, the European Central Bank is now calling for swift, strict regulations on the “Wild West” financial market.
Why does the European Central Bank want to regulate crypto?
In a speech at Columbia University, European Central Bank board member Fabio Panetta called for heavy crypto regulations. During the speech, Panetta explained that the current market is a dangerous bubble, likening it to the Wild West gold rush of the late 1800s.
Panetta explained that Bitcoin creator Satoshi Nakamoto's dream of “utopia of a stable currency free from public scrutiny” has not been realised. Instead, the market is a highly fluctuating environment that relies on heavy marketing to make profits.
“Crypto evangelists promise heaven on earth, using an illusory narrative of ever-rising crypto-asset prices to maintain inflows and thus the momentum fuelling the crypto bubble,” they said. “But appearances are deceptive. Satoshi Nakamoto’s dream of creating trustworthy money remains just that – a dream.”
Furthermore, Panetta explained that crypto investments are built exactly like a “ponzi scheme”. The European Central Bank member highlighted that “extensive news reports and investment advice on social media, highlighting past price increases” and artificial scarcity are integral to making a successful crypto token.
However, he also explained that these marketing bursts result in “high volatility”, citing the massive drop of Bitcoin by almost 50% this year. Additionally, the board member cited the country of El Salvador’s issues with making Bitcoin an official currency as the reason why blockchain transactions are less effective than fungible money.
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How will crypto be regulated?
The European Central Bank is only calling for crypto regulation; the bank obviously doesn't have the power to regulate the market itself. However, Panetta has outlined systems that should be looked at to regulate the market, or else ban it entirely.
For starters, the European Central Bank has called to treat crypto assets to the same standards as fungible assets. This would mean that the digital tokens would abide by Financial Action Task Force standards, distancing it from money laundering and terrorist financing.
Additionally, Panetta explained that cryptocurrency should be taxed “adequately”. They said: “We should bring taxation on crypto-assets into line with the taxation of other instruments and aim for alignment across jurisdictions, given the global nature of the crypto market.”
Panetta explained that the high energy usage of cryptocurrency should come into account when taxing crypto. He explained that taxation should be based on not only the monetary value of cryptocurrency, but how much damage the user does to the environment. This means that crypto miners who cause more pollution get taxed more.
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Not the only ones
The European Central Bank isn't the only body calling for regulation of cryptocurrency. After Russia used the virtual market to circumvent United States sanctions, the Democrats announced plans to regulate the currency.
Whether or not heavy regulation comes to the crypto market is yet to be seen. Additionally, with the virtual tokens’ regulations, there may be a huge effect on the crypto scene. If regulation arrives, will it still be a popular financial market? Or will the bubble burst?