Fabio Panetta: Crypto dominos - the bursting crypto bubbles and the destiny of digital finance

Keynote speech by Mr Fabio Panetta, Member of the Executive Board of the European Central Bank, at the Insight Summit held at the London Business School, London, 7 December 2022. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is a true pleasure to be back at the London Business School. I did my PhD here many years ago. As soon as I arrived, I found myself immersed in an environment where pioneering academic research and economic analysis were carried out in a friendly atmosphere. In those years I learned not only to be rigorous in doing research, but also the importance of doing one's job with enthusiasm.

I still have vivid memories of stimulating and motivating discussions with my fellow students and the faculty. I am particularly grateful to my PhD supervisor and dear friend, Professor Richard Brealey.

Moving from the past to the future, today I will discuss crypto-assets and the destiny of digital finance.

When I last spoke about crypto finance at Columbia University last April, I likened it to the Wild West and warned about the risks stemming from irrational exuberance among investors, negative externalities and the lack of regulation.

Crypto markets have since witnessed a number of painful bankruptcies. The crypto dominos are falling, sending shockwaves through the entire crypto universe, including stablecoins and decentralised finance (DeFi).

The crash of TerraUSD, then the world's third-largest stablecoin, and the recent bankruptcy of the leading crypto exchange FTX and 130 affiliated companies each took only a few days to unfold. This is not just a bubble that is bursting. It is like froth: multiple bubbles are bursting one after another.

Investors' fear of missing out seems to have morphed into a fear of not getting out.