Amidst heightened regulatory scrutiny of the cryptocurrency market, as regulators respond to the fallout from the collapse of terraUSD, a controversial so-called stablecoin that was supposed to be worth $1 forever, the criticisms of Christine Lagarde, President of the European Central Bank, resonated particularly strongly last weekend during an interview with Dutch television. In the interview, she stated that Bitcoin and other cryptocurrencies are "worthless" because, in her opinion, "there is no underlying asset that acts as a security anchor." In previous statements, Lagarde indicated that she considers the use of cryptocurrencies to be concerning, as transaction volumes are rising from the ruble to stablecoins—cryptocurrencies pegged to specific assets—and from stablecoins to other digital assets.

As cryptocurrencies plummet, with Bitcoin losing more than half its value since its November peak, Lagarde emphasized the lack of global regulations to protect inexperienced investors who invest heavily in digital assets. She said she worries about those who "don't understand the risks, who will lose everything and be terribly disappointed."

President Lagardere's attitude towards the crypto industry, as susceptible to legal money laundering and other financial crimes, has been expressed by her before – a few weeks ago she pointed out that some Russians and Russian companies are using the cryptocurrency market to circumvent the sanctions imposed on them by the West.

At the same time, she pointed to the European Central Bank's digital euro project as an alternative, which is expected to be implemented within the next four years and provide a more stable alternative to cryptocurrencies. Other global banks are also working on similar solutions.

According to Lagarde, a digital euro would be "significantly different" from private cryptocurrencies. She pointed out that from the day a central bank digital currency appears, the ECB will be behind it and that it will be different from previously known virtual currencies. Central bank digital currencies—cryptocurrencies operated by central banks—will be needed as an "anchor" to build trust in stablecoins.

The digital euro Lagarde mentions is one of several CBDCs currently in development.

The Bank of England and the US Federal Reserve, among others, are also working on a digital currency. Several small Caribbean countries have also launched their own virtual currencies. Among the large economies, China is the most advanced in implementing its CBDC project. It is currently piloting the digital yuan in several cities, including Shanghai, Shenzhen, and Xi'an. The Beijing Winter Olympics also served as a testbed for this project, with $315,000 worth of CBDC transactions processed each day of the Games.

This alert is for informational purposes only and does not constitute legal advice.

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