According to Bloomberg, the Governor of the Central Bank of Ireland, Gabriel Makhlouf, has raised concerns about the potential risks associated with unbacked cryptocurrencies, which are more akin to a “Ponzi scheme” than an investment and pose risks to investors, according to the Governor.
Makhlouf stressed the importance of urgent policy action to address these risks and called for a regulatory regime to protect consumers and investors, prevent fraud, manipulation, and money laundering, and safeguard financial stability.
Combating Ponzi Schemes In Crypto
In the report, Governor Makhlouf equated “unbacked cryptocurrencies” to Ponzi schemes rather than investments. He expressed an “urgent need for policy action” that protects investors and consumers across the European Union through “rigorous regulation.”
According to the Governor, he plans to collaborate with European regulators to develop a comprehensive regulatory framework for the crypto industry. Governor Makhlouf stated:
A regulatory regime that appropriately protects consumers and investors preserves market integrity against fraud, manipulation, and money laundering, and also safeguards financial stability, is an important next step.
Governor Makhlouf further emphasized the importance of distinguishing between backed and unbacked cryptocurrencies. The Central Bank of Ireland said it is willing to consider adopting backed crypto assets such as Electronic Money Tokens (EMTs) and Asset Reference Tokens (ARTs).
Makhlouf stated these assets adhere to the necessary reserve requirements and have “appropriate controls.” Meanwhile, the Governor urged investors to exercise caution when interacting with “unbacked crypto,” describing it as similar to buying a lottery ticket with a high likelihood of losing.
In addition, Governor Makhlouf praised the European Union’s initiatives towards establishing a regulatory framework for the cryptocurrency industry, expressing his support for the newly revealed Markets in Crypto Assets Regulation (MiCA).
To Protect Consumers?
According to a report by Chainalysis, scams and fraudulent activities accounted for over $10 billion in losses for investors in 2022 alone. The regulatory environment for cryptocurrencies has been debated in recent years, with some countries taking a strict approach while others adopting a more lenient stance.
However, the Central Bank of Ireland’s stance on unbacked crypto highlights the need for a comprehensive regulatory framework to protect consumers and investors from potential risks associated with the industry.
It is worth noting that with the growing popularity of cryptocurrencies, regulators may realize they must strike a balance between protecting consumers and investors while fostering innovation and growth in the industry.
Meanwhile, the global crypto market is beginning to show exposure to the circulating news in the industry. Over the past 24 hours, the global crypto market has declined by 0.7%, currently sitting below $1.2 trillion.
Featured image from Bloomberg, Chart from TradingView.com