Italy’s central bank will publish guidelines on how to apply incoming European Union crypto regulations “in the coming days,” Bank of Italy Governor Fabio Panetta announced on Tuesday, July 9.
Objective of the Guidelines
The upcoming guidelines aim to facilitate the effective application of the EU’s Markets in Crypto-Assets Regulation (MiCA) and to protect cryptocurrency holders. This announcement was part of Panetta’s speech to the Italian Banking Association, emphasizing the importance of clear regulatory frameworks for the burgeoning crypto market.
Panetta highlighted MiCA’s classification of tokens into two primary categories for use in payments: asset-reference tokens (ARTs) and electronic money tokens (EMTs). He pointed out that, according to the Bank of Italy, only EMTs can fully function as a means of payment while preserving public trust.
An EMT’s value is tied to a single official currency, such as a U.S. dollar-backed stablecoin. In contrast, an ART’s value is pegged to one or more assets, such as the gold-backed token PAX Gold (PAXG).
Unbacked Crypto-Assets
Panetta named Bitcoin (BTC) and Ether (ETH) as examples of “unbacked crypto-assets.” He argued that these assets “have no intrinsic value” and likened investing in them to gambling. He further claimed that the primary objective of crypto investors is to sell their assets at higher prices, often using them to “dodge tax rules or the regulations in place to counter money laundering and terrorist financing.”
“Clearly, they do not possess the characteristics that make them suited to perform the three inherent functions of money: a means of payment, store of value, and unit of account,” Panetta added.
Panetta expressed concern about the number of investors in “unbacked” cryptocurrencies who might not fully understand the risks involved. He acknowledged that while their numbers are currently low, they are “not negligible” and could grow in the future.
Increased Surveillance and Penalties
In line with MiCA compliance, the Italian government is set to increase surveillance on crypto markets. A decree reported by Reuters in late June indicated plans for fines ranging from 5,000 euros ($5,400) to 5 million euros ($5.4 million) for violations, including market manipulation and insider trading.
| Topic | Details |
|---|---|
| Guideline Objective | Facilitate effective application of MiCA and protect cryptocurrency holders |
| Token Categories | Asset-reference tokens (ARTs) and electronic money tokens (EMTs) |
| Preferred Token for Payments | EMTs fully perform the means of payment function while preserving public trust |
| Examples of Unbacked Crypto | Bitcoin (BTC) and Ether (ETH) |
| Risks of Unbacked Crypto | No intrinsic value, akin to gambling, often used to dodge tax and anti-money laundering rules |
| Investor Awareness | Current number of uninformed investors is low but could grow |
| Regulatory Compliance | Increased surveillance and penalties ranging from 5,000 to 5 million euros for violations |
The Bank of Italy’s forthcoming guidelines are part of broader efforts to regulate and stabilize the cryptocurrency market. By providing clear rules, the central bank aims to enhance investor protection and ensure the integrity of financial transactions involving digital assets.
Potential Benefits
- Investor Protection: Clear guidelines can help protect investors from fraudulent schemes and risky investments.
- Market Stability: Regulations can reduce market manipulation and insider trading, contributing to a more stable market environment.
- Public Trust: Establishing trust in digital currencies as a reliable means of payment and store of value can foster broader adoption.
Challenges Ahead
- Regulatory Compliance: Ensuring all market participants comply with new regulations may be challenging.
- Market Reaction: The crypto market’s response to increased regulation could be mixed, with some participants potentially seeking less regulated jurisdictions.
The Bank of Italy’s initiative to publish guidelines for applying the EU’s MiCA regulations underscores the country’s commitment to regulating the rapidly evolving crypto market. By addressing the classification of tokens and emphasizing the need for investor protection, these guidelines aim to create a safer and more transparent environment for cryptocurrency transactions.
As the market awaits these guidelines, the focus will be on how they influence the behavior of both investors and market participants. The success of these measures will depend on effective implementation and enforcement, ensuring that the benefits of regulation are realized without stifling innovation in the digital asset space.
Featured image credit: Rubaitul Azad via Unsplash
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