Crypto more like ‘Ponzi schemes’ than investments, says Makhlouf

It “might be more accurate” to describe unbacked crypto assets as “Ponzi schemes” rather than investments, Central Bank governor Gabriel Makhlouf has said, warning Irish consumers that the asset class “should be treated with a large dose of scepticism”.

In his strongest remarks yet on the unregulated and divisive digital assets, Mr Makhlouf – who previously said crypto offers “no social value whatsoever” – said that while the regulator is “open” towards crypto coins or digital tokens that are backed by another asset, such as hard currency, unbacked assets continue to pose risks for consumers.

“The purchase of such products can be similar to purchasing a lottery ticket: you might win but you probably won’t,” he said in a blog post on the Central Bank’s website last Friday. “And describing it as ‘investment’ is, needless to say, an abuse of the word; ‘Ponzi schemes’ might be more accurate. The Central Bank remains concerned at the potential for consumer harm and, in particular, discourages the marketing of crypto to the public.”

Mr Makhlouf’s comments come just weeks after the European Parliament overwhelmingly voted to pass the European Union’s first set of rules to regulate crypto asset markets. Known as the Markets in Crypto Assets regulation, the legislation comprises the world’s first comprehensive set of regulations for issuing and trading crypto assets such as bitcoin.

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In the post, Mr Makhlouf said he welcomed the move and although it is “not due to be fully implemented in the EU until the start of 2025″, the regulation was an “important step in the regulation of crypto activities”.

While Ireland’s exposure to the market was “currently low”, Mr Makhlouf said: “The reality of course is that crypto is not going away very soon and the nature of the product means international co-ordination is needed to ensure it is regulated and supervised at a level commensurate to the risk it poses.”

The governor’s remarks are certain to raise the hackles of an industry that is desperate for legitimacy and has suffered a number of high-profile scandals. The most notable incident was the implosion of Sam Bankman-Fried’s FTX crytpto exchange late last year amid a hail of US fraud charges and recriminations.

Nevertheless, the Government is keen to promote Ireland as a destination for blockchain companies and has tasked Irish funds with preparing a White Paper on crypto assets and digital assets, reporting to the Department of Finance’s fintech steering group.