The Governor of the Central Bank of Ireland, Gabriel Makhlouf, has compared unbacked cryptocurrencies to a Ponzi scheme. He also claims that crypto is not going away anytime soon. Makhlouf noted in a Friday blog post that Ireland’s Central Bank distinguishes between ‘backed’ and ‘unbacked’ cryptocurrency.
Makhlouf noted in a Friday blog post that Ireland’s Central Bank distinguishes between ‘backed’ and ‘unbacked’ cryptocurrency. Under the Markets in Crypto Assets Regulation (MiCA), the bank remains “open to the potential of ‘backed crypto”. These include Electronic Money Tokens (EMTs) and Asset Reference Tokens (ARTs).
The benefits of ‘unbacked’ and poorly-backed crypto, on the other hand, “should be treated with a large dose of scepticism,” Makhlouf stated. He went on to say that purchasing them is like purchasing a lottery ticket. While there is a chance of winning, it is unlikely. Makhlouf further claimed that referring to it as an “investment” is an overuse of the term and that “Ponzi schemes” would be a more fair description.
He spoke about the previous cold winter which shook the financial market. He urged people to not get too comfortable with this industry. Both the public and the judicial and financial sectors need to work on their approach towards the industry.
“As we approach the summer, the lessons learned from the crypto winter shouldn’t be forgotten. The events of the past year, where we saw many failures in the crypto world have ensured that central banks, regulators and policymakers are all discussing crypto and the role it is currently playing in the financial system.”
At the same time, Makhlouf also asked the people to not get too comfortable with crypto. He reiterated that crypto is still unstable and it needs to be understood carefully.
“In the case of crypto, this market is developing at pace and the risks to consumers and investors are rising, particularly as these products remain unregulated. While the market itself – including so-called “influencers” – often speaks to the potential opportunities around crypto, regulators around the world have long been talking about the risks consumers face as they interact with the sector.”
Nevertheless, the Governor remarked that central banks are taking “a real step forward” in using technological developments. He cited the Bank of International Settlements (BIS) Innovation Hub Eurosystem Centre as an example, where teams focus on “compliant use” of DeFi tools, blockchain, and smart contracts. The European Parliament has just adopted MiCA. The new legal framework addresses a wide variety of crypto-related concerns. They included affecting exchanges, custody providers, investment advisers, stablecoin issuers, and other businesses operating in the EU market.
