European Central Bank President Christine Lagarde said crypto-currencies are “based on nothing” and should be regulated to steer people away from speculating on them with their life savings.
In an interview on a Dutch television show, College Tour, she stated that the market is highly speculative and dangerous to people who do not know the risk involved. It is, therefore, important to regulate them to prevent people from losing their funds.
“My very humble assessment is that it is worth nothing, it is based on nothing, there is no underlying asset to act as an anchor of safety,” she said.
“The day when we have the central bank digital currency out, any digital euro, I will guarantee—so the central bank will behind it and I think it’s vastly different than many of those things,” Lagarde said.
Lagarde said she doesn’t hold any crypto assets herself because “I want to practice what I preach.” But she follows them “very carefully” as one of her sons invested—against her advice. “He’s a free man,” she said.
Crypto “could lead to another financial crisis”
In October 2021, a senior deputy at the Bank of England cautioned that the cryptocurrency Bitcoin could lead to another financial crisis.
Deputy governor Sir Jon Cunliffe said that governments must begin to instill stricter regulations on crypto, comparing the volatility of digital currencies to the US sub-prime mortgage bubble that ended in disaster with the 2008 recession.
Cunliffe warns that crypto could crash dramatically in the coming years, triggering a devastating reverberation similar to that of the housing markets over a decade ago.
The growth in cryptocurrencies during 2021 has been astounding with digital currency growing roughly 200 percent in value from $800 billion to $2.3 trillion.
However, Cunliffe warns that aspects of this growth resemble that of the sub-prime mortgages and that there are already signs that indicate that crypto traders are investing in crypto with borrowed money.
If crypto crashes, these lenders could be affected, leading to a wider collapse in the financial system.