A “pyramid scheme”, “worth nothing” and “unreliable” – cryptocurrencies have been subjected to a harsh review by senior officials gathered in Davos, Switzerland, for the 2022 World Economic Forum meeting.
Digital assets have become a hot topic after the crash of the stablecoin TerraUSD triggered a massive crash in the cryptocurrency this month, removing nearly $1 trillion from the market.
According to Coinbase, Bitcoin, which was worth more than $54,000, was trading at $23,424 on Tuesday, down nearly 37% since the start of the year. Other popular cryptocurrencies, such as Ethereum and Solana, have seen larger losses year-to-date.
Here is what the finance officials had to say about cryptocurrency as the global elite conference in Davos.
digital pyramid diagram
IMF Managing Director Kristalina Georgieva has compared some cryptocurrencies to pyramid schemes.
“When someone promises you a 20% return on something that is not backed by any assets, what do we usually call this? We will 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 is not money. The prerequisite for something to be called money is for it to be a constant store of value.”
However, Georgieva noted the value in some digital currencies, with varying levels of risk associated with different denominations.
For example, she said there is value in central bank digital currencies because they are backed by the state, while some stablecoins are “worthy of 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 maintain their value by being pegged to assets such as the US dollar. Tether, for example, is always supposed to be worth $1, and promises to redeem coins for $1 if customers want their money back.
TerraUSD, or UST – an algorithm-backed stablecoin and its sister cryptocurrency called Luna – collapsed earlier this month. It was once the third largest stablecoin by market cap, with a market cap of nearly $19 million at the beginning of May.
Floor lockers, which were always supposed to be worth $1, were trading around 7 cents on Tuesday.
The more support there is [a digital currency] “The more you are willing to take the risk of this thing exploding in your face,” Georgieva told the panel in Davos.
However, she urged people not to completely abandon cryptocurrencies, adding that it is important for global regulators to play a role in their use and better educate investors about them.
Speaking to World Economic Forum Founder and CEO Klaus Schwab on an episode of Radio Davos, “Cryptocurrencies are not currencies at all,” said Christine Lagarde, president of the European Central Bank.
“They are speculative assets, the value of which changes dramatically over time, and they present themselves as currencies, which they are not,” she said.
“We should call it a spade. An asset is an asset, and it should be regulated as such, and it should be overseen by regulators and asset stewards, but it shouldn’t pretend to be a currency. It isn’t.”
She added that the stablecoins were “pretending to be a coin” in their own right, but were in fact “completely pegged” to an actual coin.
“Coin issuers should back up their coins to a number of dollars equal to their coins. This must be verified, supervised, and regulated, so that consumers and users of these devices can be protected from potential misrepresentation.”
“Very recent history shows that reserve currencies were not always available and as liquid as they were meant to be.”
Lagarde’s latest comments come after she gave another fierce assessment of cryptocurrency on Saturday, telling a Dutch talk show: “My very humble estimate is that… [crypto] It’s nothing, it’s based on nothing – there is no fundamental origin to serve as a safety anchor.”
Francois Villeroy de Gallo, governor of the Bank of France, said in Davos on Monday that he does not refer to crypto assets as cryptocurrency.
“It is not a reliable currency, it is not a reliable means of payment,” he said. In order for it to become a currency, someone has to be responsible for the value – no one is responsible for the value of cryptocurrencies. And it must be universally accepted as a medium of exchange – it is not.”
After Terra’s collapse, Villeroy said he believes that “citizens have lost faith in cryptocurrencies.”
An investment, not a means of payment
Meanwhile, Sithaput Suthiwartnaroiput, governor of the Bank of Thailand, told an audience in Davos: “It’s OK if you want to invest in [crypto]but we don’t want to see it as a means of payment because it is inappropriate.”
Thailand’s central bank is developing a digital currency for the public, but the country announced earlier this year that it is banning the use of cryptocurrencies as a means of payment, saying the widespread use of digital assets poses a threat to the Thai economy.
This story originally appeared on Fortune.com