In a nutshell (Key Points)
- The Bank of Italy lectured on the fact that there was a growing risk of crypto-assets being introduced to traditional finance.
- It is critical that similar coordinated control over crypto is implemented everywhere in the world activates are formed by Governor Fabio Panetta.
- Panetta identified concerns about Bitcoin ETF and business crypto reserves.
- He questioned stablecoins, data protection and a possibility of regulations being avoided by large tech companies worldwide.
- To provide safer and transparent cryptocurrency markets, Italy is in support of the MiCA regulation in Europe.
- There is an active cooperation of authorities with crypto service providers to enhance financial and cybersecurity protection.
- Bank of Italy warns about a dangerous merging of crypto and traditional finance
Increasing Dangers of a Crypto Incorporation
Key Phrase: Crypto and Traditional finance
Regulators all over the world are concerned of inter-relations between crypto and conventional finance which are becoming stronger. Fabio Panetta, chief of Italy-based central bank, has avoided too excessive warnings, but he also issued a warning:
“It is overlapping with severe threats. Most cryptocurrencies (including Bitcoin) lack any underlying value and can fluctuate wildly in respect to price unlike more standard financial assets.”
There is a fear of the increasing collaborations between financial establishments and cryptocurrency companies. A large number of Bitcoins are being held by public companies and Bitcoin ETFs have integrated crypto into the wider financial markets too. The trends may subject ordinary investors and the financial system to a high level or volatility.
The Warning of Panetta on Stablecoins
Governor Panetta also highlighted the attention over stablecoins, digital tokens which are tied to fiat currencies. These are claimed to provide stability in terms of prices but Panetta raised question marks on their reliability:
“They are doubtfully useful as a method of payment unless a strong regulation is present.”
He cautioned that the possibility of the global tech giants using stablecoins in payments would lead to them developing systemically important financial networks that are not subject to national supervision. This could:
- Weaken the government regulation of currencies
- Expose consumers to danger with data
- Put consumer data at risk
- Unsettle conventional banking products such as loaning
Moreover, Panetta raised an alarm concerning the potential crypto application in illegal purposes as money laundering and sanction avoidance because of the in-built anonymity of the blockchain.
The Relevance of MiCA
Considering those risks, Panetta commended the Markets in Crypto-Assets Regulation (MiCA) as a good move towards the EU. MiCA introduces:
- A statutory difference between kinds of stablecoins
- Particular rules of electronic money tokens (EMTs) that involve official currencies
- Increased transparency and consumer safeguard
Panetta said, only these EMTs have enough safeguards that pass the muster as a dependable form of payment under the new system.
MiCA has established a new standard of crypto regulation in an attempt to match innovation with safety.
Regulators Increase their Participation
The central bank of Italy is not sitting on its arms either. Panetta noted the active cooperation with the crypto service providers in introducing:
- Effective defense mechanisms
- The main focus of this challenge is enhancing cybersecurity to provide strong protection against the high risk of attacks, or to find ways to cope with them.
- Financial controls
- Anti-money laundering compliance
This pre-emptive strategy was detailed during the 31st Assiom Forex Congress at which Panetta again emphasized the need to regulate in a co-ordinated way to achieve financial stability.
Final Thoughts
Crypto and traditional finance are entering each other’s space at an increasing pace, but regulated without control it can be extremely systemic risky. The warnings made by governor Fabio Panetta are an imperative demonstration that the digital finance should develop in a capable and visible system.
As Europe progresses to implement MiCA, other countries might follow in its footsteps and make crypto catalyze and not kill the economy of the entire world.