With Cryptos ‘Worth Nothing,’ ECB’s Lagarde Renews Calls for Regulation

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European Central Bank President Christine Lagarde reiterated her concerns over cryptocurrencies and desire for regulation. 

“My very humble assessment is that it is worth nothing, it is based on nothing, there is no underlying asset to act as an anchor of safety,” Lagarde said in an interview on Dutch television, according to media reports. The ECB president said she is particularly worried about people who don’t understand the risks associated with the volatile digital currencies and “will lose it all.” That, she said, “is why I believe that that should be regulated.”

Lagarde’s comments are no surprise. She has long expressed her discomfort with cryptocurrencies, which have exploded in popularity alongside a long stretch of ultra-low global interest rates that have sent investors hunting for yield. The ECB took interest rates below zero in 2014; the central bank’s main policy rate now sits at negative 0.5%. Outside of the eurozone, countries including Switzerland and Japan also have negative interest rates. 

In the U.S., the Federal Reserve lifted rates from zero in March and is expected to hike another half-percentage point, to a range of 1.25% to 1.5%, next month.

The latest crypto-criticism out of the ECB mirrors concerns voiced by U.S. leaders and comes amid a painful stretch for cryptocurrency investors. Earlier this month, Treasury Secretary and former Fed Chairwoman Janet Yellen called for new federal regulation over cryptocurrencies. “

We really need a regulatory framework to guard against the risks,” said Yellen, referring to the type of cryptocurrencies that are called stablecoins, which are pegged to a currency such as the dollar. Her comments came during a House committee hearing after the

Terra
stablecoin, one of the biggest such coins, fell below $1 and triggered chaos in crypto markets.

From its November high,

Bitcoin
has fallen about 55%. During the second quarter alone, it has declined more than 20%.

Ether,
meanwhile, has dropped about 60% from its all-time high. Its co-founder, Vitalik Buterin, tweeted Friday that he is no longer a billionaire.

Lindsey Bell, chief markets strategist at Ally Financial, said the crypto market has survived its first real test — at least for now. “This was the first real risk of an event that could have caused contagion,” she said, but “the crypto market has been able to stabilize in the past few days.”

Bitcoin has risen 0.7% to $29,348 over the past 24 hours, according to CoinDesk. Ether has gained 0.9% to $1,974.

That doesn’t mean things will necessarily get much better — or less volatile — soon for crypto investors. Digital currencies have become increasingly correlated to major stock indexes, with data from crypto research firm Arcane Research showing the correlation between Bitcoin and the

Nasdaq
recently rising to a record high 80%. Bitcoin’s correlation with the

S&P 500
is only slightly lower. 

Stocks remain under pressure as investors anticipate next month further Fed rate increases and the start of so-called quantitative tightening, the partial reversal of massive bond-buying over the past two years. Monetary policy tightening, more aggressive than originally expected as inflation is near a 40-year high, comes as the U.S. economy is already showing signs of slowing. Growing recession fears have pulled the S&P 500 to the brink of a bear market. 

Cryptos will also have to contend with ongoing calls for regulation. Ally’s Bell said she sees growing regulation as a “key characteristic in the crypto world” where “the winners of today may not be the winners of tomorrow.”

Write to Lisa Beilfuss at lisa.beilfuss@barrons.com