Cryptocurrencies “are pure fiction, having no monetary function, no recognized and responsible issuer nor, except in some cases, any “real” underlying assets. They are speculative instruments that exploit the so-called “herd effect”: my neighbor bought them and immediately resold them at double the price, because I can’t do the same”. Or, to put it another way, “they are the chips of a gigantic gambling game”. Salvatore Rossi, a long career at the Bank of Italy where he was General Manager, has a very harsh opinion on cryptocurrencies, as emerges from this interview he gave to FIRST online. But things could get worse if Trump's crypto plan were to come to fruition, a "disjointed and barely comprehensible plan" that "will end badly" but risks creating "enormous damage for the entire world". This is why Italy and Europe must not be seduced "by possible legislative and regulatory developments overseas" but "keep the course straight". Rossi is absolutely convinced of this and in his interview he explains how.
With the return to the White House of Donald Trump, who in his first presidency had defined Bitcoin as “a scam”, a new era seems to begin for cryptocurrencies both because the American President promises a marked deregulation and because he would like to make America the world capital of cryptocurrencies: what effects can such a tsunami have and what are the main risks we run?
“Among the many outbursts of the new president of the United States of America, many of which have taken the form of “executive orders” signed in the first days of his mandate, there is one that has been considered secondary by most observers, concerning the so-called cryptocurrencies. I am pleased that FIRST online is dealing with it, because it is a serious and very risky issue. Trump has ordered the creation of a working group to propose new rules on digital financial activities (in short, to completely deregulate the cryptocurrency market) and to explore the creation of national reserves in cryptocurrencies. During the election campaign, Trump stated at one point that he intended to be the crypto president".
And now?
“Now he is following up on that announcement. His activism (also) in this field is not unrelated to the lobby of companies that manufacture and sell crypto products, but it falls squarely within that pseudo ideology, which is his own, of laissez-faire extreme in economics, of demolishing all the rules that could annoy entrepreneurs, of reducing the public sector and public policies to a minimum. Cryptocurrencies, born about fifteen years ago from Bitcoin - a strange object functional to a project that dealt with something completely different - have multiplied, there are now several hundred of them and they are created by countless private individuals. They owe their name to the fact that they carry a cryptographic device that guarantees the owner absolute anonymity, more than banknotes. They are pure fiction, having no monetary function, no recognized and responsible issuer nor, except in some cases, any 'real' underlying activities”.
So it's pure speculation?
"Yes, they are speculative instruments that exploit the so-called 'herd effect': my neighbor bought them and immediately resold them for double, why can't I do the same? It's a shame that their market value fluctuates wildly: when it collapses, it drags a lot of unfortunate people into ruin. Cryptocurrencies would also aspire to be a means of payment, but since they are not legal tender, those who receive them as payment must be confident that they can in turn pass them on to someone else, which has so far greatly limited their use, apart from criminal circuits (drug and weapon buying, ransoms, blackmail, etc.) where anonymity is the supreme value. If the Trump administration's project were to take hold, savers and consumers would be exposed to very serious risks and the entire financial system would fall into chronic instability. We can trust that the American president's statement is just a rant, but the suspicion is growing among many that Trump is turning it into facts. all the electoral proclamations, even the most absurd ones".
Trump has in fact already moved from words to deeds and last March 6 he signed an executive order establishing a “strategic reserve of Bitcoin” and a second containing other cryptocurrencies. Both will be capitalized with cryptocurrencies confiscated during criminal or civil proceedings. Is such a plan really feasible and what could be its consequences?
"It seems to me to be a haphazard and barely comprehensible plan. I doubt very much that it can be implemented, at least in the ways announced. Its consequences, assuming that it actually goes ahead, are unpredictable because of its senselessness and in any case I see no positive effect, neither for the United States nor for the rest of the world."
With other executive orders, Trump has previously banned any form of digital currency issued by central banks in the US, including the digital euro. What implications could this move have for financial stability?
“Many central banks, including the European Central Bank, have been studying the possibility of issuing digital currencies for some time. They are doing so as an alternative to paper banknotes, the use of which is decreasing and appears destined, in the long term, to disappear. It is not a simple decision, the banknotes reach the public through the banking system, which in this way is, from the point of view of the central bank, the main means of transmission of its monetary policy. For a central bank, digitizing its currency means providing any citizen with a wallet at its premises and pouring into it the money to which that citizen is entitled, on behalf of the person who has to pay it, who will see his wallet reduced by the same amount. In order not to completely displace the banks, for example, the ECB is considering various types of limits. But all this has little to do with cryptocurrencies. If the United States bans the official digital dollar with the misguided aim of favoring cryptocurrencies, they will commit a self-destructive act, isolating the American money market from that of the rest of the world”.
The American president is also acting alone: on the one hand, according to the wsj, his family is said to be in talks to acquire a stake in Binance, a company that has pleaded guilty to violating anti-money laundering requirements, and has launched its own memecoin that has earned $350 million, but has caused investors to lose over $2 billion. Don't you think there is a huge conflict of interest between your actions as an entrepreneur and as president?
“Sure, but what does Trump and his associates and voters care about? The expression 'conflict of interest' is attributed by them to the malicious will of the opponents to overturn the election result with legal quibbles. We Italians are already familiar with this type of objection. Indeed, Trump, by committing his own resources and those of his family, shows that he believes completely in the project to bring cryptocurrencies out of the gray area in which they are still confined. That he is an entrepreneur is what he claims to accredit himself as a politician and a man of government: I make money, I make all Americans make it! It will end badly, but in the meantime the damage for the whole world will be enormous”.
Faced with the destabilizing effects of Trump's crypto-strategy, what can Europe, and with it Italy, do to face and minimize the dangers?
“Keep the course straight. Do not be influenced by any legislative and regulatory developments overseas. Continue efforts to regulate the phenomenon of cryptocurrencies, which are objectively harmful to the community, in a balanced way. It will not be easy, because the attraction of any game of chance, and cryptocurrencies are the chips of a gigantic game of chance, is great for many. It cannot be banned completely dirigistically, it would be counterproductive: betting while risking is part of human nature; public authorities can however demand that those who bet are perfectly aware of the risks they run and that the unaware are not defrauded”.
If even Intesa Sanpaolo, the main Italian bank, creates a task force to closely monitor the crypto phenomenon, while warning that it is not an advisable investment for families, must we acknowledge that Bitcoin, and cryptocurrencies in general, are the future? Is it enough to demonize them or is everything based on regulation and what type should it be to be truly effective?
“It is not a question of demonizing cryptocurrencies but of explaining their nature well. They are not the future, they come from the past, from the thousand-year history of all the financial “bubbles” that sooner or later burst. As has been done with all the bubbles of the past, we must naturally study them, because they can always take on new aspects. Cryptocurrencies have a strongly technological and therefore modern aspect, even if this does not alter their purely speculative nature”.
Despite its riskiness, are there aspects of Bitcoin that are worth saving, such as the underlying technology and blockchain? And what do you think about other types of cryptocurrencies, such as memecoins or stablecoins?
“Bitcoins, as I mentioned before, were invented years ago to serve as a financial reward for owners of large servers who were asked to cooperate in the project of a large global distributed ledger based on blockchain technology, also invented for the occasion. An anarchic and visionary project, then abandoned. But blockchain technology was brilliant and has survived by taking multiple paths and giving rise to many uses. Stablecoins are attempts to create cryptocurrencies that have some anchor to real activities such as official currencies, thus stabilizing their market value. But if I only want to invest my savings, it is not clear why I should buy a stablecoin equivalent to one euro and not directly one euro. Memecoins are a joke, linked as they are to an image, a photo, a comic. A joke that can turn out to be very bitter for those who fall for it”.
