A “pyramid scheme,” “worth nothing,” and “not reliable”—cryptocurrencies have been given a scathing review by top officials gathering in Davos, Switzerland, for the World Economic Forum’s 2022 meeting.
Digital assets are a hot topic after the collapse of stablecoin TerraUSD sparked a major cryptocurrency crash this month, with around $1 trillion wiped out of the market.
Bitcoin, once worth more than $54,000, was trading at $23,424 on Tuesday, according to Coinbase, and is down by around 37% year to date. Other popular cryptocurrencies, like Ethereum and Solana, have seen even bigger year-to-date losses.
Here’s what financial officials have had to say about digital currencies as the world’s elite convene in Davos.
A digital pyramid scheme
International Monetary Fund Managing Director Kristalina Georgieva compared some cryptocurrencies to pyramid schemes.
“When somebody promises you a 20% return on something that is not backed by any assets, what would we normally call this? We would call it a pyramid,” she said during a panel discussion on Monday.
“In other words, this is a pyramid [scheme] in the digital age.”
She added: “Bitcoin may be called a coin, but it’s not money. A prerequisite for something to be called money is to be a stable store of value.”
However, Georgieva noted value in some digital currencies, with varying risk levels associated with different categories.
For example, she said there is value in central bank-issued digital currencies because they are backed by the state, while some stablecoins “deserve the name” because they are backed by assets on a one-to-one basis.
Stablecoins are digital assets sometimes referred to as coins or tokens that are designed to keep their value by being pegged to assets like the U.S. dollar. Tether, for instance, is always meant to be worth $1, and promises to redeem coins for $1 if customers want their money back.
TerraUSD, or UST—a stablecoin backed by an algorithm and a sister cryptocurrency called Luna—collapsed earlier this month. It was once the third biggest stablecoin by market capitalization, with a market cap of almost $19 million at the beginning of May.
UST, which was supposed to always be worth $1, was trading for around 7 cents on Tuesday.
“The less there is backing [a digital currency] up, the more you should be prepared to take the risk of this thing blowing up in your face,” Georgieva told the panel at Davos.
However, she urged people not to abandon digital currencies entirely, adding that it is important for global regulators to play a part in their use and offer better education on them for investors.
Worthless
Speaking to WEF Founder and Executive Chairman Klaus Schwab for an episode of Radio Davos, European Central Bank President Christine Lagarde said “cryptocurrencies are not currencies at all.”
“They are speculative assets, the value of which changes enormously over the course of time, and they present themselves as currencies, which they are not,” she said.
“We should call a spade a spade. An asset is an asset, it has to be regulated as such, has to be supervised by the asset regulators and supervisors, but should not claim that it is a currency. It is not.”
She added that stablecoins were “pretending to be a coin” in their own right, but were actually “completely associated” with an actual currency.
“Coin issuers should have to back up their coins with as many dollars as they have coins. That needs to be checked, supervised, regulated, so that consumers and users of those devices can actually be protected against potential misrepresentation,” she said.
“Very recent history shows that reserve currencies were not always available and as liquid as they were intended to be.”
Lagarde’s latest comments come after she gave cryptocurrencies another blistering assessment on Saturday, telling a Dutch talk show: “My very humble assessment is that [crypto] is worth nothing, it is based on nothing—there is no underlying asset to act as an anchor of safety.”
Not reliable currencies
François Villeroy de Galhau, governor of the Bank of France, said at Davos on Monday that he does not refer to crypto assets as cryptocurrencies.
“They are not reliable currencies, they are not a reliable means of payment,” he said. “In order to be a currency somebody must be responsible for the value—nobody is responsible for the value of cryptos. And it must be accepted universally as a means of exchange—it’s not.”
Following the collapse of Terra, Villeroy said he believes “citizens have lost trust in crypto.”
An investment, not a means of payment
Meanwhile, Sethaput Suthiwartnarueput, governor of the Bank of Thailand, told an audience at Davos: “It’s fine if you want to invest in [crypto], but we don’t want to see it as a means of payment because it’s not appropriate.”
Thailand’s central bank is developing a digital currency for the public, but the country announced earlier this year that it was banning the use of cryptocurrencies as a method of payment, saying widespread use of digital assets was a threat to the Thai economy.
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