Gabriel Makhlouf, governor of the Central Bank of Ireland, has reportedly expressed concerns about potential risks associated with unbacked cryptocurrencies, which are more akin to a “Ponzi scheme” than an investment and pose risks to investors.

Makhlouf stressed the importance of urgent policy action to address these risks and called for regulatory regimes to protect consumers and investors, prevent fraud, manipulation and money laundering, and safeguard financial stability.

Fighting Ponzi Schemes in Cryptocurrency

In the report, Governor Makhlouf equated “unbacked cryptocurrencies” to Ponzi schemes rather than investments. He said “policy action is urgently needed” to protect investors and consumers across the EU through “strict regulation.”

According to the Governor, he plans to work with European regulators to develop a comprehensive regulatory framework for the crypto industry.

“A regulatory regime that appropriately protects consumers and investors, safeguards market integrity from fraud, manipulation and money laundering, and maintains financial stability is an important next step,” said Governor Makhlouf.

Governor Makhlouf further stressed the importance of distinguishing between backed and unbacked cryptocurrencies. The Central Bank of Ireland has expressed its willingness to consider backed crypto assets such as Electronic Money Tokens (EMTs) and Asset Reference Tokens (ARTs).

Makhlouf said the assets meet the necessary reserve requirements and have “appropriate controls.” Meanwhile, the governor urged investors to exercise caution when interacting with “unbacked cryptocurrencies,” describing them as akin to buying a lottery ticket that is likely to lose.

Additionally, Governor Makhlouf praised the EU’s move to establish a regulatory framework for the cryptocurrency industry, expressing his support for the newly announced Regulation on Markets in Crypto-Assets (MiCA).

Protect consumers?

According to a report from Chainalysis, scams and fraudulent activities have cost investors more than $10 billion in losses in 2022 alone. The regulatory environment for cryptocurrencies has been controversial in recent years, with some countries taking a strict approach and others taking a more relaxed stance.

However, the Central Bank of Ireland’s stance on unbacked cryptocurrencies highlights the need for a comprehensive regulatory framework to protect consumers and investors from potential risks associated with the industry.

Notably, as cryptocurrencies grow in popularity, regulators may realize that they must strike a balance between protecting consumers and investors and promoting innovation and growth in the industry.

Meanwhile, the global cryptocurrency market began to expose the news circulating in the industry. In the past 24 hours, the global cryptocurrency market fell by 0.7% and is currently below $1.2 trillion.