Bitcoin: A “lottery ticket”? Ireland’s central bank governor weighs in on crypto
In a recent blog post, Gabriel Makhlouf, governor of the Central Bank of Ireland, advocated a strict regulatory approach to the burgeoning crypto sector.
Makhlouf’s remarks come after a turbulent year for digital assets, dubbed the “crypto winter,” which saw major market volatility and failures such as the crash of stablecoin TerraUSD and the bankruptcy of crypto exchange FTX.
The governor of the Irish central bank emphasized the need for policy measures to address the risks associated with the unregulated crypto market. He praised the approval of the Markets in Crypto Assets Regulation (MiCA) by the European Parliament, which will establish supervisory and consumer requirements for the crypto sector across the EU.
Makhlouf made clear the distinction between ‘supported crypto’ and ‘unsupported crypto’. While the central bank is open to “backed crypto” such as Electronic Money Tokens (EMTs) and Asset Reference Tokens (ARTs), which are subject to appropriate reserves and controls, it remains skeptical of “non-backed crypto”. Makhlouf equated buying ‘unbacked crypto’ to buying a lottery ticket, stressing the high risk associated with such investments:
“My view is that the purported benefits of “unsupported crypto” should be treated with a large dose of skepticism. Buying such products can be similar to buying a lottery ticket: you might win, but you probably won’t. And to describe it as ‘investment’ is needless to say a misuse of the word; “Ponzi schemes” might be more accurate.“
Despite the inherent risks, Makhlouf noted the potential of decentralized finance (DeFi) tools, including blockchain and smart contracts, as a means of improving access to finance for SMEs. He highlighted the work of the Bank of International Settlements (BIS) Innovation Hub Eurosystem Centre, which is exploring the compatible use of DeFi and instant payment solutions.
Makhlouf’s cautious stance on crypto reflects broader concerns among central bankers about the rapid growth and impact of digital assets on financial stability. He acknowledged the persistence of crypto, but called for international coordination to ensure that regulation and oversight are commensurate with the risks it poses.
The governor expressed concern over aggressive and often misleading advertising in the crypto sector, particularly the use of paid influencers. He advocated similar rules across all financial markets regarding the handling of client funds, disclosures, governance, risk management and information sharing.
Makhlouf concluded by reinforcing the regulator’s role in ensuring that technological innovation benefits society and consumers. He committed to working with stakeholders across the EU and global forums such as the Financial Stability Board to establish a rigorous regime that promotes a level playing field and avoids regulatory arbitrage.
