In a speech given this week at Columbia University by Fabio Panetta, Member of the Executive Board of the European Central Bank (ECB), he decried the entire “crypto gamble,” seeing crypto-assets as “bringing about instability and insecurity – the exact opposite of what they promised” and calling for tighter regulation in the EU (and coordination with international partners) to curb the financial and associated risks from crypto-assets.

Panetta’s speech (entitled “For a few cryptos more: the Wild West of crypto finance”) evoked remarks made by SEC Chair Gary Gensler back in August 2021 that labeled crypto the “Wild West” and requested Congress give the Commission more authority “to write rules for and attach guardrails to crypto trading and lending” that would boost consumer trust and allow the industry to prosper.  Panetta’s scathing broadside was lobbed against what he sees as the risky, seamier side of crypto – the speculative fervor and greed, the high volatility of crypto markets, the facilitation of criminal financial activity, the lack of adequate disclosures, the largely unregulated or “insufficiently supervised” cryptocurrency miners and service providers, and other un- or under-regulated aspects of the “crypto bubble” that, if left ignored, could pose risks to financial stability (citing the sub-prime mortgage market that triggered the last global financial crisis). While far more strident in tone than President Biden’s March 2022 executive order, Panetta’s speech similarly articulated a high-level strategy for regulating and fostering innovation in the burgeoning digital assets space and pushed for central banks to move more quickly to develop central bank digital currencies (CBDCs) and “respond to the people’s growing demand for digital assets and a digital currency by making sovereign money fit for the digital age” or else sit by as the private sector satisfies this demand.

Taking a wide view, Fabio Panetta’s remarks, coupled with the multiple crypto-related regulatory developments ongoing both in the EU and U.S., suggest that some changes are afoot for the crypto industry. While there has been some industry-friendly legislation at the state level in recent years to encourage innovation, at the federal level it seems that the honeymoon period of light touch or no regulation (or largely, regulation by agency enforcement) for the crypto industry is over. Innovation in this space continues at a furious pace at the same time as regulators are slowly gaining experience and expertise about the public policy and investor risks surrounding crypto-assets. Thus, providers should expect more scrutiny and additional compliance hurdles going forward, as multiple regulators have stated that the lasting innovations and societal benefits of cryptocurrencies and DeFi applications can only occur alongside responsible regulation. Panetta stated that pulling off such responsible oversight will not be easy, as there will be “complex trade-offs, balancing the goals of promoting innovation, preserving financial stability and ensuring consumer protection.”