Lagarde says crypto is ‘worth nothing’, should be regulated

Bloomberg

European Central Bank (ECB) President Christine Lagarde said cryptocurrencies are “based on nothing” and should be regulated to steer people away from speculating on them with their life savings.
Lagarde told Dutch television that she’s concerned about people “who have no understanding of the risks, who will lose it all and who will be terribly disappointed, which is why I believe that that should be regulated.”
The ECB unexpectedly accelerated its wind-down of monetary stimulus, signalling it’s more concerned about record inflation than weaker economic growth as Russia’s invasion of Ukraine threatens to propel prices even higher.
The comments come amid choppy times for crypto markets, with digital currencies Bitcoin and Ether down 50% from last year’s peak. At the same time, the asset class is facing tougher scrutiny from regulators worried about the dangers it may pose to the broader financial system.
Lagarde said she’s skeptical of crypto’s value, contrasting it with the ECB’s digital euro — a project that may come to fruition in the next four years.
“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.
Other ECB officials have already voiced concerns. One is Executive Board member Fabio Panetta, who said in April that crypto-assets “are creating a new Wild West,” and drew parallels with the 2008 subprime mortgage crisis.
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 drawdown
has little impact on
economy: Goldman Sachs
US households might own about one-third of the global cryptocurrencies market, but that doesn’t mean the recent downturn will have a huge effect on the economy.
That’s according to economists at Goldman Sachs Group Inc, who note that the recent selloff in digital assets is “very small” relative to overall household net worth, which last year stood at $150 trillion.
Crypto markets have slumped in value to about $1.3 trillion, down from $2.3 trillion late last year.
“We therefore expect any drag on aggregate spending from the recent declines in cryptocurrency prices to be very small as well,” economists led by Jan Hatzius said.
Amid a selloff in cryptocurrencies and the stock market, economists and market watchers are attempting to tally just how much the US consumer could be hit. One study has found that every dollar lost in stocks leads to a 3-cent reduction in spending. After the five-month selloff, that equates to about $300 billion zapped this year. The impact on wealth is receiving renewed attention because consumer spending makes up 70% of GDP, and many on Wall Street are predicting the economy could fall into a recession soon.
Crypto holdings account for just 0.3% of household net worth, according to Goldman Sachs, compared with equities, which accounted for around 33% at the end of 2021. Their recent price declines have likely reduced household net worth by about $8 trillion.
“These patterns imply that equity price fluctuations are the main driver of changes in household net worth, while cryptocurrencies are only a marginal contributor,” Goldman Sachs economists wrote.
Meanwhile, the bank sees “limited scope” for an increase in labour-force participation due to crypto prices declining. Studies have, in the past, found that changes in net worth can sometimes significantly affect people’s participation in the labour force.
Yet “cryptocurrency investors skew younger and male, a demographic group whose labor force participation has generally been less affected by wealth fluctuations,” they wrote.