SPEECH  Paradise lost? How crypto failed to deliver on its promises and what to do about it Speech by Fabio Panetta, Member of the Executive Board of the ECB, at a panel on the future of crypto at the 22nd BIS Annual Conference, 23 June 2023 Basel, 23 June 2023  Introduction Some 15 years ago, software developers using the pseudonym Satoshi Nakamoto created the source code of what they thought could be decentralised digital cash. [1] Since then, crypto has relied on constantly creating new narratives to attract new investors, revealing incompatible views of what cryptoassets are or ought to be. The vision of digital cash – of a decentralised payment infrastructure based on cryptography – went awry when blockchain networks became congested in 2017, resulting in soaring transaction fees. [2] Subsequently, the narrative of digital gold gained momentum, sparking a “crypto rush” that led to one in five adults in the United States and one in ten in Europe speculating on crypto, with a peak market capitalisation of € trillion. [3] However, this illusion of crypto-assets serving as easy money and a robust store of value dissipated with the onset of the crypto winter in November 2021. The fall in the price of cryptos (Chart 1) led to a decrease of around € trillion worth of crypto assets within less than a year. This caught millions of investors unprepared. [4] An estimated three-quarters of bitcoin users suffered losses on their initial investments at this time.
In the primary market, government’s demand for funding is reflected in the increased yields of government securities. However, the trajectory of yields retained its trend, showing low inflation expectations by market agents. As regards the economy’s performance outlook, our projections and assessments suggest a continuation of economic growth, in terms relative to those of the first quarter. Composition of aggregate demand is expected to be different to the one of the first half of the year: private sector of the economy is expected to be more vivacious in the second half, while the contribution of the public and external sectors are expected to be more moderate. Size and speed of the private sector recovery shall define the stability of economic growth in the future. In spite of assessments for increased aggregate demand, economic activity in Albania is expected to remain below its potential, thus conditioning the continuation of spare  2  BIS central bankers’ speeches  capacities in the economy in the period ahead. Subsequently, inflationary pressures originating from the aggregate demand are expected to be contained. In addition, foreign prices effect is expected to be more moderate in the upcoming months while inflation expectations of economic agents continue to be within the target band. Consumer price inflation is expected to continue its downward trend in the next months, gradually approaching the Bank of Albania target. Taking into consideration the information above, the Supervisory Council concluded that inflationary pressures in the medium term are contained.