Italy’s central bank is poised to release guidelines for implementing the European Union’s new cryptocurrency regulations. Governor Fabio Panetta announced that the guidelines will aim to ensure the effective application of the EU’s Markets in Crypto-Assets Regulation (MiCA) while safeguarding cryptocurrency holders.

Panetta’s address to the Italian Banking Association outlined the risks and distinctions within the crypto-asset market. He emphasized the need for regulation, particularly for stablecoins, which are digital assets pegged to a portfolio of reserve assets such as currencies, deposits, or securities.

Without stringent regulations, these stablecoins could face redemption runs if holders lose confidence. Unbacked crypto-assets like Bitcoin or Ethereum, lacking intrinsic value or income generation, pose significant risks due to their volatility and the opaque, informal circuits they often trade on.

Risks and Categories in the Crypto Market

Highlighting the potential dangers, Panetta noted that these unbacked assets are frequently held by individuals aiming for speculative gains, sometimes to evade tax and anti-money laundering regulations. Their value, often disconnected from fundamentals, can fluctuate sharply, making them unsuitable as a reliable means of payment, store of value, or unit of account.

Despite currently being a small portion of the market, the share of unbacked crypto-assets held by unsuspecting investors could grow, especially in emerging markets. The EU’s MiCA framework, which will be fully implemented this year, aims to mitigate these risks by establishing specific rules for different types of digital tokens.

MiCA distinguishes between electronic money tokens (EMTs) linked to a single currency, asset-referenced tokens (ARTs) linked to multiple assets, and unbacked digital-assets. While EMTs and ARTs are considered stablecoins with stringent regulatory requirements, unbacked assets and utility tokens are subjected mainly to prior notification obligations.

Panetta said that these new regulations will finally put the crypto market under control even though much remains to be done because the sector is too complex and changing rapidly. The risk of managing stablecoins on unreliable platforms, especially outside Europe, would further underline traditional and non-traditional financial intermediaries’ need for strong financial and operational risk management.

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