Digital Assets to be Treated as Gambling by ECB

Fabio Panetta, a European Central Bank's (ECB) Executive Board member, has called for greater oversight in the wake of crises and controversy reshaping the world of international cryptocurrency trading.

Panetta argued that recent events had increased the need for greater regulation of cryptocurrencies in several areas in a blog post posted on the ECB's website.

He said that unbacked cryptocurrencies should be treated as gambling activities because of their speculative nature and significant value fluctuation as their values are not supported by legitimate assets but rather by supply and demand.

The executive refers to a string of collapses involving cryptocurrencies to highlight crypto players' extremely high leverage, interconnectedness across the crypto ecosystem, and inadequate governance structures.

Panetta understands that the cryptocurrency sector is here to stay, unlike other regulators who view it as another “bubble” or scam. He emphasises that cryptocurrency, as opposed to any reliable investment asset, is more akin to “a vehicle for gambling.”

Cryptocurrency is a rapidly evolving market, much like the betting and gaming sector. In Panetta's opinion, regulators must move quickly to ensure they keep up with new developments.

He argued that regulators should focus on how cryptocurrencies can be used for money laundering, financing terrorism, and evading sanctions, as well as the risk that investors will lose a significant amount of money. Therefore, in order to protect vulnerable users from these unbacked digital assets, application of rules similar to the European Commission-recommended principles for online gambling should be applied.

Tighter cryptocurrency regulations and urges for gambling laws to be applied to blockchain-based products are not new. They have worsened over the past year as both sectors have become more interconnected, and the former has expanded.

For instance, the UK Gambling Commission (UKGC) has stated numerous times that it intends to take into account “new and emerging” products, such as NFTs before the UK Gambling Act review White Paper is released.

Increased regulation could affect both industries as they become more intertwined, with crypto accounting for a significant portion of wagers last year, albeit at a lower rate than in prior years, according to SOFTSWISS.

Dr George Theocharides, the Chairman of the Cyprus Securities and Exchange Commission (CySEC), cautioned against the dangers of investing in cryptocurrencies and supported MiCA in October 2022. In addition, the head of CySEC criticised the speculative nature of digital assets in a piece posted on the regulator's website.

The collapse of FTX, which caused significant turbulence across the crypto markets, hasn't deterred crypto-betting companies, according to SBC's research. For instance, in an interview in November, BetDEX CEO Varun Sudhakar expressed continued optimism about the market's prospects.

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