Jack Kubinec

A potential spot bitcoin ETF would expose more traditional investors to the flagship cryptocurrency, but there’s one buyer they can rule out: the European Central Bank.&nbsp;



ECB executive board member Isabel Schnabel <a href="https://x.com/ecb/status/1745093297230520498?s=20">wrote</a> in a Wednesday morning Q&amp;A on X that the bank “is very unlikely to ever buy Bitcoin” after being asked whether the ECB would acquire the asset for its balance sheet.&nbsp;&nbsp;



The European Central Bank is tasked with controlling monetary conditions in the bloc of European Union countries that use the euro. Its US equivalent would be the Jerome Powell-led Federal Reserve.



Read more: <a href="https://blockworks.co/news/bitcoin-etf-planned-fees-slashed">Bitcoin ETF war enters end game: BlackRock, Ark cut planned fees</a>



Schnabel was nominated by the German government to serve on the ECB’s executive board in 2019. The executive board is a six-person committee <a href="https://www.ecb.europa.eu/ecb/orga/decisions/eb/html/index.en.html#:~:text=Responsibilities,taken%20by%20the%20Governing%20Council.">responsible</a> for implementing monetary policy based on guidance given by the ECB’s governing council.



Schnabel has been known for hawkish <a href="https://www.bloomberg.com/news/articles/2023-06-19/ecb-must-err-on-side-of-doing-too-much-on-rates-schnabel-says">views</a> on interest rate hikes during Europe’s battle with inflation, though she recently <a href="https://www.bloomberg.com/news/articles/2023-06-19/ecb-must-err-on-side-of-doing-too-much-on-rates-schnabel-says">reversed</a> course on the subject.



Schnabel is the latest in a succession of ECB board members to speak publicly about crypto. Elizabeth McCaul and Fabio Panetta <a href="https://blockworks.co/news/binance-needs-supervision-ecb-says">both called for tougher regulation</a> on cryptocurrencies and exchanges last year.&nbsp;



The <a href="https://blockworks.co/tag/ecb">ECB</a> is among a slew of central banks exploring a central bank digital currency (<a href="https://blockworks.co/tag/cbdc">CBDC</a>), a digitized version of a fiat currency. The ECB is <a href="https://blockworks.co/news/eu-digital-euro-plan">still in a “preparation phase”</a> for its digital euro. Crypto boosters tend to <a href="https://x.com/danheld/status/1527294961624170496?s=20">pan</a> CBDCs — which are regulated by central banks and may run on permissioned blockchains.&nbsp;



Multiple European central banks <a href="https://www.ssga.com/library-content/pdfs/ic/how-do-central-banks-invest.pdf">have</a> notable gold reserves on their balance sheets, with some <a href="https://www.reuters.com/plus/why-central-banks-buy-gold">purchasing</a> more of the commodity in recent years. But central banks have been slow on the uptake of bitcoin, which <a href="https://www.grayscale.com/research/market-commentary/october-2023-rising-demand-for-bitcoin-as-digital-gold">some</a> cast as a digital equivalent to gold.&nbsp;



Even with a <a href="https://blockworks.co/news/how-we-got-here-bitcoin-etf">spot bitcoin ETF on the horizon</a>, this seems unlikely to change, at least for now. Schnabel’s post drew ire from online bitcoin fans.



“This post will age terribly,” one X user <a href="https://x.com/iseekalpha/status/1745094836573634563?s=20">wrote</a> in response.



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Bitcoin

European Central Bank ‘very unlikely ever to buy bitcoin’: Board member

Katherine Ross

What kind of framework, if any, should exist for crypto assets? That’s a question posed by Elizabeth McCaul, a supervisory board member of the European Central Bank, in a blog post aimed at taking a critical eye to the crypto world as we currently know it.&nbsp;



McCaul believes that <a href="https://www.bankingsupervision.europa.eu/press/blog/2023/html/ssm.blog230405~03fd3d664f.en.html">regulation</a> within crypto would help to maintain financial stability, though she pointed out that Markets in Crypto-Assets (<a href="https://blockworks.co/tag/mica">MiCA</a>) is expected to provide insight into the crypto industry and allow more oversight into the activities of crypto-based firms.&nbsp;



She is not the only member of an <a href="https://blockworks.co/tag/ecb">ECB</a> board to have expressed concerns around regulation, either. Back in January, ECB executive board member Fabio Panetta <a href="https://www.ecb.europa.eu/press/blog/date/2023/html/ecb.blog230105~75d5aee900.en.html">wrote</a>, “We cannot afford to leave cryptos unregulated. We need to build guardrails that address regulatory gaps and arbitrage and tackle the significant social costs of cryptos head-on.”



McCaul noted, “Although the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) have acknowledged the need for a global regulatory and supervisory framework for crypto-assets, I am afraid that this project is still very much in its infancy.”



She made the case that additional frameworks could help boost the effectiveness of MiCA and Basel. Additionally, she observed that the failure of <a href="https://blockworks.co/news/ftx-transferred-money-bankman-fried">FTX</a> exposed a &#8220;contagion&#8221; effect in the crypto ecosystem.



“The nature and scale of crypto-asset markets are rapidly evolving and could reach a point where they represent a threat to global financial stability.



McCaul argued that the lack of borders and jurisdictions make a tough regulation case, and will require the international community to come together to create the framework.&nbsp;



“Even firms that claim to have no headquarters, such as Binance, need to be ‘supervisable,’” she wrote.&nbsp;



From FTX’s handling of assets to using software to cover up the misuse of customer funds, there’s a laundry list of what allegedly went wrong at <a href="https://blockworks.co/tag/ftx">FTX</a>. But it’s the lack of consolidated oversight due to the company’s global scale that seems to have concerned McCaul.



“In my view, large players like FTX or Binance need a consolidated approach, even if this requires adjustments to existing legislation. Conflicts of interest must be identified across the group and even beyond, taking into account affiliated entities,” McCaul argued.



European banks have shown themselves to be cautious about engaging in crypto-related activities, due in part to the uncertainty and infancy around regulation in the space — a view that McCaul said she supports until authorities implement further regulation.



“Banks need to define their risk appetite limits before engaging in any crypto-related operations. In so doing, they should assess the adequacy of their risk management arrangements to cope with the challenges of the crypto market. They should define a clear business strategy – to be approved by the management body – and implemented by senior management,” McCaul wrote.



But while European countries and the <a href="https://blockworks.co/news/crypto-regulation-policy-law">US</a> have both been researching solutions separately, no international framework for regulation currently exists.



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Binance

Binance, Crypto Firms Need To Be ‘Supervisable,’ Warns ECB Board Member

Casey Wagner

<div id="highlights-block_62aa0cf6bfc2e" class="highlights">
 <ul>
 <li>European Central Bank holds rare unscheduled meeting as market conditions worsen</li>
 <li>S&amp;P and Nasdaq hold steady while BTC and ETH fall ahead of interest rate announcement</li>
 </ul>
 
</div>



The pullback in crypto markets continued Wednesday as firms cut staff while investors assess the damage from Celsius’ withdrawal halt and the <a href="https://cms.blockworks.co/crypto-fund-three-arrows-capital-facing-potential-insolvency-report/" target="_blank" rel="noreferrer noopener">apparent insolvency</a> of longtime digital assets hedge fund firm Three Arrows Capital.&nbsp;



The Federal Reserve is slated to announce an expected 0.75 percentage point interest rate hike Wednesday afternoon following the end of its two-day policy meeting. The European Central Bank, which was not scheduled to meet, issued a <a href="https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220615~2aa3900e0a.en.html" target="_blank" rel="noreferrer noopener">statement</a> saying it would “apply flexibility” going forward to combat increasingly turbulent markets.&nbsp;



“It&#8217;s become very clear that central banks are going to have to be very aggressive in countering mounting price pressures around the globe and that the probability of recessions has increased,” Craig Erlam, senior market analyst at OANDA, wrote in a note Wednesday. “Stagflation is not yet here but the risks around it have risen considerably in recent months which makes central bank responses all the more critical.”&nbsp;



Many more rate hikes will be demanded in the short term to get a degree of control over runaway inflation, Erlam said — and markets are not reacting well.&nbsp;



Bitcoin inched lower toward $20,000 early Wednesday while ethereum slid closer to $1,000. The tech-heavy Nasdaq and the S&amp;P 500 were both trading slightly higher ahead of Fed Chair Jerome Powell’s press conference, signaling the market has largely priced in a 75-point hike, according to Erlam.&nbsp;



“There is still a huge gap between nominal rates and real rates, so there is much more room for the Fed and other central banks to hike in the months to come,” said Mikkel Morch, executive director at digital asset hedge fund ARK36. “Investors can’t realistically expect risk assets to have a more sustained uptrend until the Fed pivots.”



The risk-off sentiment is likely not going to dissolve anytime soon, in Erlam’s estimation.&nbsp;



“Risk appetite has been obliterated and the days of ultra-low rates are behind us, there isn&#8217;t the same speculative mood that existed when bitcoin was exploding higher,” Erlam said. “There may still be a belief that bitcoin can thrive in the future but something that offers little now beyond speculative rallies is going to continue to struggle. Especially when we&#8217;re seeing headlines like those around Celsius and Binance.”




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Cryptos Extend Losses Ahead of Fed, ECB Announcements

Tiago Varzim

<div id="highlights-block_626956f5e7b8e" class="highlights">
 <ul>
 <li>Ruble volumes surged in March, but not to a level that causes alarm</li>
 <li>Binance, which has the bulk of the ruble trading volumes, has taken steps to comply with sanctions requirements</li>
 </ul>
 
</div>



Two months since Russia’s invasion of Ukraine provoked unprecedented international sanctions, regulators remain concerned that crypto could offer a financial loophole for Russians. In the European Union, officials are confident that no relevant evasion is occurring following an agreement between countries to clarify that cryptoassets are under the scope of sanctions.



&#8220;We are currently examining whether cryptoassets could be used by Russia to circumvent any other measure we have introduced,&#8221; a European Commission spokesperson told Blockworks. &#8220;Our feedback from the markets is that there is broad awareness&#8221; that crypto is fully covered by EU sanctions.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">&#8220;What is important now is to continue and intensify enforcement work. In this context, we will continue to constantly monitor the market situation.&#8221;</blockquote>



The major concern is whether capital outflows from Russia through crypto markets might jeopardize the sanctions&#8217; effects on its economy. If there are any indications of non-compliance, the EU’s executive arm stands &#8220;ready to adopt additional measures to limit any circumvention risks.”



At this stage, EU officials believe that market information doesn&#8217;t indicate that crypto has been used to circumvent sanctions on a large scale, Blockworks has learned. Data from CryptoCompare, a British cryptocurrency market data provider, suggests that ruble trading volumes on crypto markets spiked in March, but sank thus far in April.



Rubles predominantly trade against the USDT stablecoin, followed by bitcoin and other cryptocurrencies. When the ruble was losing value, the volume could have been affected, because Russians needed more rubles to buy the same amount of crypto than before the war.



The ruble&#8217;s value has recovered over the past month — particularly against the euro — as Europe <a href="https://www.bloomberg.com/news/articles/2022-04-27/four-european-gas-buyers-made-ruble-payments-to-russia" target="_blank" rel="noreferrer noopener">grapples with Russia’s demand</a> for natural gas deliveries to be paid in rubles rather than euros.



&#8220;In February, USDT volume dominance grew from 20.3% to 27.4% and then to 59.9% in March. This could indicate that traders were using crypto as a way to flee ruble exposure as the currency fell,” research and data analyst from CryptoCompare James Webb said. “It will be interesting to see if future geopolitical tensions lead to upticks in fiat/stablecoin pair volumes as the market matures, and investors seek to minimize this inherent risk.”



Not all observers agree that crypto is benign when it comes to effective sanctions. In an analysis seen by Blockworks, Ukrainian crypto startup <a href="https://glprotocol.com" target="_blank" rel="noreferrer noopener">Global Ledger Protocol</a>, which focus on anti-money laundering (AML) risk assessment in digital assets, describes a model of how Russians may be able to avoid sanctions through over the counter brokers and exchanges. But it isn’t clear if wealthy oligarchs could make use of crypto rails given modest transaction limits imposed by crypto-fiat on-ramps.



<h3 class="wp-block-heading">Governments and regulators offer few details on crypto sanctions</h3>



In the EU, sanctions are enforced directly by its 27 member nations, but authorities have their hands tied due to a lack of legislation, which is still being discussed between the European Parliament and the Council of the EU, the governing body’s legislative branch. Blockworks contacted governments and central banks in the EU&#8217;s biggest economies — Germany, France, Italy and Spain — but none revealed details of their crypto sanctions efforts.&nbsp;



The French government, which is at the helm of the EU Council through June, said it is “implementing the sanctions against Russia on all types of transferable securities, including cryptoassets.&#8221;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The aim of the EU decision is to make sure these sanctions are implemented in a unified manner,” the French Ministry of Economy, Finance and the Recovery said.&nbsp;</blockquote>



The European Central Bank (ECB) said it only assesses the prudential implications of sanctions regimes by checking if European banks have the necessary arrangements to adhere to the sanctions in place. In March, ECB&#8217;s president Christine Lagarde warned that cryptoassets &#8220;are certainly being used, as we speak, as a way to try to circumvent the sanctions.&#8221;



ECB board member Fabio Panetta reiterated the point in <a href="https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220425~6436006db0.en.html" target="_blank" rel="noreferrer noopener">a speech Monday</a> that was <a href="https://cms.blockworks.co/lawless-crypto-industry-needs-harsh-regulation-european-central-bank-exec-says/" target="_blank" rel="noreferrer noopener">broadly critical</a> of the growth in digital assets.



The Bank of Italy said there was no official data regarding crypto sanctions, and the Bank of Spain disclaimed responsibility for sanctions enforcement.



The German Bundesbank told Blockworks that &#8220;prohibitions like the ones relating to cryptoassets are directly applicable&#8221; and that &#8220;violations of related prohibitions could be prosecuted as criminal or regulatory offenses.” The German central bank revealed that it took part in a survey by the European Banking Authority (EBA) on cryptoassets and sanctions, but the results are not yet public.



“Consistent with its convergence mandate, the EBA has been collating questions from industry and national authorities regarding questions about the EU’s sanctions regime and forwarding these to the European Commission,” EBA told Blockworks.



<h3 class="wp-block-heading">Binance appoints global head of sanctions and applies limits to Russian wallets&nbsp;</h3>



Last week, Binance, the exchange most widely used by ruble holders with over 50% market share, created a new global head of sanctions position and began <a href="https://cms.blockworks.co/binance-to-limit-services-to-russians-following-latest-round-of-eu-sanctions/" target="_blank" rel="noreferrer noopener">restricting service</a> to high-volume Russian users.



Unlike Coinbase, a US-based custodian that froze 25,000 Russian wallets, the biggest crypto exchanges in Europe contacted by Blockworks declined to disclose any figures.&nbsp;



&#8220;eToro always complies fully with all applicable rules and regulations, which includes sanctions, and it will continue to do so,” the company said.



A Crypto.com spokesperson said the company is &#8220;aware of and in compliance with all applicable sanctions requirements.&#8221;



Binance CEO Changpeng “CZ” Zhao had previously assured that the company had a compliance task force with “world-renowned sanctions and law enforcement experts,&#8221; and he denied the idea that crypto is a feasible option to outmaneuver the West&#8217;s financial punishment.



&#8220;We are meeting sanction requirements, and crypto is not useful to avoid sanctions,” <a href="https://www.binance.com/en/blog/leadership/ukraine-russia-sanctions-and-crypto-421499824684903532" target="_blank" rel="noreferrer noopener">he said in a blog post</a>.



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Are Crypto Sanctions Working in Europe?

<div id="highlights-block_626852f28f162" class="highlights">
 <ul>
 <li>European Central Bank officials are concerned about crypto’s volatility</li>
 <li>Many protocols make empty promises to investors in a similar way to a “Ponzi scheme,” Fabio Panetta said</li>
 </ul>
 
</div>



A European Central Bank (ECB) board member has taken a tough stance against digital assets, dubbing the business of blockchain a “lawless frenzy.”



Fabio Panetta, who has served on the ECB board since 2020, called for greater regulation of the emerging asset class to protect investors from the “Ponzi scheme” of cryptocurrencies.



“Crypto evangelists promise heaven on earth, using an illusory narrative of ever-rising cryptoasset prices to maintain inflows and thus the momentum fueling the crypto bubble,” Panetta said during a speech at Columbia University in New York Monday. “But appearances are deceptive. Satoshi Nakamoto’s dream of creating trustworthy money remains just that: a dream.”



The industry today bears a “striking” resemblance to the subprime mortgage crisis of 2008 that triggered the largest US economic downturn since the Great Depression, Panetta said.&nbsp;



Additional ECB officials, meanwhile, have voiced concerns over the pace of the industry’s growth. The European Union, like the US, is still in the early days of regulating digital assets.&nbsp;



ECB Vice President Luis de Guindos said while the asset class’ volatility has not yet had an impact on financial stability, it is a risky industry that regulators need to watch.&nbsp;



“At this pace of growth, we have to pay attention to it — especially in relation to issues such as terrorism financing and tax evasion,” he <a href="https://www.ecb.europa.eu/press/inter/date/2021/html/ecb.in211130~887737ac79.en.html" target="_blank" rel="noreferrer noopener">said in November</a>.



Isabel Schnabel, another board member, has previously called bitcoin “speculative,” adding its high volatility makes it “unsuitable as a store of value.”



Amid the call for greater oversight, the ECB has been investigating the use case for a central bank digital currency, Panetta told the European Parliament in March.



A government-issued electronic currency could revolutionize the payments systems, but there are concerns about privacy and security.&nbsp;



“Issuing a central bank digital currency would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world,” the ECB wrote in a June <a href="https://www.ecb.europa.eu/pub/ire/html/ecb.ire202106~a058f84c61.en.html#toc18" target="_blank" rel="noreferrer noopener">report</a>.



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CBDC

‘Lawless’ Crypto Industry Needs Harsh Regulation, European Central Bank Exec Says

Macauley Peterson

<div id="highlights-block_61bb6de2d796b" class="highlights">
 <ul>
 <li>The Bank of England raised interest rate by 15 basis points to 0.25%, in a near unanimous vote</li>
 <li>The European Central Bank leaves rates unchanged, but will taper its government bond purchases</li>
 </ul>
 
</div>



The Bank of England’s monetary policy committee (MPC), decided on Thursday to raise its Bank Rate to 0.25%, according to <a href="https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-2021" target="_blank" rel="noreferrer noopener">the committee’s minutes</a>, in a bid to dampen inflation. The 12-month CPI rate jumped from 5.1% in November, up from 3.1% in September, and the highest level since September 2011. The Committee voted by an eight to one margin in favor of the rate hike.



The move comes a day after the US Federal Reserve’s analogous group left rates unchanged but also <a href="https://cms.blockworks.co/fed-gets-hawkish-doubles-taper-signals-three-rate-hikes-in-2022/" target="_blank" rel="noreferrer noopener">moved to tighten monetary policy</a> by decelerating its asset purchase program more quickly than earlier planned.



Like the Fed, the Bank of England (BoE) policymakers expect that upward pressure on CPI inflation is driven primarily by supply disruption and should dissipate over time, returning closer to the committee’s long-term 2% target rate.



The MPC notes that the Omicron Covid-19 variant is spreading rapidly in the UK, but it’s medium-term economic effects remain unclear, while inflation has risen faster than anticipated.&nbsp;



The International Monetary Fund (IMF) UK staff weighed in with <a href="https://www.imf.org/en/News/Articles/2021/12/14/united-kingdom-staff-concluding-statement-of-the-2021-article-iv-mission" target="_blank" rel="noreferrer noopener">a policy statement</a>, Tuesday, targeted squarely at the BoE, warning against “inaction bias, in view of costs associated with containing second-round impacts.”



Unemployment in the UK is expected to be 4% in November, down 0.5%, indicating the labor market remains tight.



<h3 class="wp-block-heading">ECB calls for “flexibility”</h3>



In the Eurozone, inflation surged to 4.9% in November, the highest level ever recorded, <a href="https://ec.europa.eu/eurostat/documents/2995521/11563387/2-30112021-AP-EN.pdf" target="_blank" rel="noreferrer noopener">according to Eurostat</a>.



At Thursday’s <a href="https://www.ecb.europa.eu/press/pressconf/2021/html/ecb.is211216~9abaace28e.en.html" target="_blank" rel="noreferrer noopener">European Central Bank (ECB) policy meeting</a> in Frankfurt, Germany, ECB President Christine Lagarde announced a scaling back of asset purchases under the pandemic emergency purchase program (PEPP), and its full discontinuance in March 2022.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We judge that the progress on economic recovery and towards our medium-term inflation target permits a step-by-step reduction in the pace of our asset purchases over the coming quarters. But monetary accommodation is still needed for inflation to stabilise at our two per cent inflation target over the medium term,” Lagarde said in her prepared remarks.</blockquote>



<hr class="wp-block-separator"/>



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<hr class="wp-block-separator"/>



The key ECB interest rates were left unchanged. Similar to the Fed’s policy, the ECB plans to wind down net asset purchases prior to raising rates.



Eurozone inflation is expected to remain elevated next year, but to decline over the course of the year, mirroring the outlook in both the UK and the US.



The US dollar weakened following the BoE and ECB announcements. The DXY, an index representing the USD against a basket of major foreign currencies, fell almost 0.5% in the two hours following the policy updates, but recovered by midday in New York.




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Bank of England

The ECB and Bank of England Grapple With Inflation

<div id="highlights-block_60b7aa5b60592" class="highlights">
 <ul>
 <li>Countries that fail to offer a CBDC risk losing power to foreign tech giants </li>
 <li>CBDCs offer greater security, lower transaction costs and higher accessibility </li>
 </ul>
 
</div>



Central banks that chose not to establish official digital currencies are risking losing autonomy and control over their financial systems, the European Central Bank said.&nbsp;



“Issuing a central bank digital currency would help to maintain the autonomy of domestic payment systems and the international use of a currency in a digital world,” the ECB said in a <a href="https://www.ecb.europa.eu/pub/ire/html/ecb.ire202106~a058f84c61.en.html#toc18" target="_blank" rel="noreferrer noopener">report</a> published Wednesday.&nbsp;



Customers and businesses without access to a central bank digital currency will be forced to turn to outside providers for the services, potentially undermining central bank dominance, the ECB said.



“Attention should be paid to the risks to stability that might arise if a central bank does not offer a digital currency,” the ECB said. “One concern could be a situation in which domestic and cross-border payments are dominated by non-domestic providers, including foreign tech giants potentially offering artificial currencies in the future.”



CBDCs offer greater safety and lower transaction costs, the ECB said. CBDCs also provide greater accessibility because there is no need for financial intermediaries. 



“A CBDC would have the potential to widen access to payment services, promote financial inclusion and lower mark-ups of traditional intermediaries,” the ECB said. “If made interoperable with non-domestic payment systems, it could contribute to filling gaps or correcting inefficiencies in cross-currency payment infrastructures, including for transfers of remittances.”&nbsp;



If officials are on board, ECB President Christine Lagarde said that a CBDC may be operational in Europe within the next four years.&nbsp;



As digital assets and blockchain technology continue to infiltrate traditional financial systems, central banks across the globe are being pushed to consider new options. The Bahamas became the first nation to issue an official digital currency with the Sand Dollar’s launch in 2020. The People’s Bank of China is poised to <a href="https://cms.blockworks.co/experts-chinas-cbdc-is-all-about-finance-control/" target="_blank" rel="noreferrer noopener">debut its CBDC</a> by the 2022 Olympic Games. On the other hand, the <a href="https://cms.blockworks.co/bank-of-canada-no-strong-case-for-cbdc-right-now/" target="_blank" rel="noreferrer noopener">Bank of Canada</a> and the <a href="https://cms.blockworks.co/feds-brainard-says-us-must-remain-on-frontier-of-cbdc-research/" target="_blank" rel="noreferrer noopener">Federal Reserve</a> have both been hesitant to pull the trigger, but have expressed interest in further CBDC research.&nbsp;

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