Crypto-Assets and Financial Stability: The Bank of Italy’s Call for Caution

The Bank of Italy on Friday sounded a clear warning about the deepening ties between crypto-assets and the traditional financial system, warning of the risks crypto could pose to financial stability.

Governor Fabio Panetta stressed the urgent need for a coordinated and comprehensive regulatory framework for digital assets, especially as they become increasingly integrated into mainstream finance.

A Risky Integration with Traditional Finance

Governor Panetta noted the growing number of agreements between crypto firms and financial intermediaries.

A growing number of large, publicly traded U.S. firms now park substantial Bitcoin holdings on their balance sheets, putting everyday investors on the hook for the coin’s sharp price swings. At the same time, the boom in Bitcoin exchange-traded funds has woven crypto even more tightly into traditional markets.

Panetta cautioned that this overlap comes with serious dangers. Unlike standard financial assets, most cryptocurrencies—including Bitcoin—have no underlying value and can swing wildly in price.

Since they are typically traded on lightly regulated, opaque platforms, these assets could set off shocks that reverberate through the wider financial system.

Stablecoins and Systemic Threats

Panetta also focused on the emergence of stablecoins—digital assets designed to maintain value relative to fiat currencies or other assets. While they seek to offer price stability, their utility as a payment instrument remains questionable in the absence of robust regulation.

Risks related to issuer reliability and the underlying collateral persist, raising concerns for consumers and regulators alike.

The Governor warned that if major global tech companies were to adopt stablecoins for payments across their platforms, they could create powerful, systemically important networks beyond the reach of national regulators.

These shifts could erode governments’ control over their own currencies, put people’s data at risk, and upend core banking services such as lending.

Panetta also warned that the anonymity built into many crypto-assets makes them attractive for bad actors, who could use them to launder money, trade illegally, or dodge international sanctions.

MiCA: Strengthening Rules for Safer Crypto Markets

Governor Panetta noted the importance of regulatory progress in Europe, pointing to the Markets in Crypto-Assets Regulation (MiCA) as a step toward a safer and more transparent digital asset market.

He noted that MiCA introduces clearer rules designed to protect consumers and ensure the orderly development of crypto markets.

The regulation distinguishes between different types of stablecoins, granting payment legitimacy only to those backed by a single official currency, referred to as electronic money tokens (EMTs).

According to Panetta, only these EMTs offer sufficient safeguards to qualify as a reliable means of payment under the new framework.

Italy’s Central Bank Engages Crypto Firms

Italy’s central bank and securities regulator have been in active discussions with crypto service providers to ensure robust financial and cybersecurity safeguards.

Speaking at the 31st Assiom Forex Congress on Feb. 15, Panetta addressed key concerns related to digital finance, cryptocurrency regulations, and cybersecurity risks.

He noted that the global crypto ecosystem is under increasing regulatory scrutiny due to its potential links to money laundering and broader financial stability concerns.

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