Fabio Panetta: Paradise lost? How crypto failed to deliver on its promises and what to do about it

Speech by Mr Fabio Panetta, Member of the Executive Board of the European Central Bank, at a panel on the future of crypto at the 22nd BIS Annual Conference, Basel, 23 June 2023. 

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

Introduction

Some 15 years ago, software developers using the pseudonym Satoshi Nakamoto created the source code of what they thought could be decentralised digital cash. Since then, crypto has relied on constantly creating new narratives to attract new investors, revealing incompatible views of what crypto-assets are or ought to be.

The vision of digital cash – of a decentralised payment infrastructure based on cryptography – went awry when blockchain networks became congested in 2017, resulting in soaring transaction fees.

Subsequently, the narrative of digital gold gained momentum, sparking a "crypto rush" that led to one in five adults in the United States and one in ten in Europe speculating on crypto, with a peak market capitalisation of €2.5 trillion.

However, this illusion of crypto-assets serving as easy money and a robust store of value dissipated with the onset of the crypto winter in November 2021. The fall in the price of cryptos (Chart 1) led to a decrease of around €2 trillion worth of crypto assets within less than a year. This caught millions of investors unprepared. An estimated three-quarters of bitcoin users suffered losses on their initial investments at this time.