​Ireland’s Central Bank Governor compares investing in unsecured cryptocurrencies to buying a lottery ticket

What’s new? Governor of the Central Bank of Ireland Gabriel Makhlouf criticized unsecured cryptocurrencies, in his opinion, investing in this type of asset is more like buying a lottery ticket, but not an investment. In addition, the official believes that any such project is a Ponzi scheme. In a comment on the law adopted by the European Parliament on Markets in Crypto Assets (MiCA) Regulation, Makhlouf also noted the need for regulation of cryptocurrencies, by analogy with the traditional financial sector.

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What other statements have been made? According to Makhlouf, Ireland’s central bank pays great attention to technological innovation, noting both its benefits and risks. In this, the agency’s work is focused on mitigating the latter.

Throughout 2022, the bank has seen major risks manifest, including a lack of consumer and investor protection, aggressive and misleading advertising, inappropriate use of customer assets, and insufficient collateral quality for a number of cryptocurrencies. A significant flaw in the industry is the lack of regulation, Makhlouf believes. He singled out the collapse of the Terra blockchain ecosystem and the FTX crypto exchange last May and November, respectively, as examples of these risks.

The Central Bank distinguished two types of cryptocurrencies: with and without collateral. The first includes assets that are subject to MiCA regulation, with confirmed reserves and controls, such as tokenized assets. For the second type, the bank classified all cryptocurrencies without collateral.

“The purchase of such products can be similar to purchasing a lottery ticket: you might win but you probably won’t. And describing it as “investment” is, needless to say, an abuse of the word; “Ponzi schemes” might be more accurate,” Makhlouf added.

The agency believes that cryptocurrencies will not disappear anytime soon, which means there is a need for coordinated action between countries to ensure regulation and oversight of this industry. In this, cryptocurrencies need to be regulated in the same way as traditional finance.

At the same time, Makhlouf praised the potential of decentralized finance (DeFi), including blockchain technology and smart contracts, to improve access to finance for small and medium-sized enterprises. Such projects are currently being developed as part of the Bank for International Settlements (BIS) Innovation Hub.

On April 20, the European Parliament approved MiCA, with full implementation of the bill’s standards to be completed by 2025. Its approval made the EU the first region with unified legislation on cryptocurrencies. A license obtained in one of the bloc’s countries will allow crypto companies to offer services across the Union.

Earlier, the head of the European Central Bank (ECB), Christine Lagarde, noted that a second regulatory document similar to the MiCA is needed to strengthen bitcoin and DeFi regulation.