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When Christine Lagarde talks about crypto, there is usually a bang – and hard. In addition to US Democrat Elizabeth Warren, the head of the ECB has become an absolute hardliner in the regulation of BTC and Co. in recent months.
Crypto knowledge of the head of the ECB
Cryptocurrencies are purely “speculative assets” and are used for money laundering, drug trafficking and other criminal activities, recently also for the Kremlin, which uses crypto to circumvent Western sanctions. “They are a danger,” the head of the ECB sums up. And calls for ever stricter regulations. Is the gloomy picture justified? A fact check.
1) Lagarde on crypto currency status
Cryptocurrencies are not currencies. They are highly speculative assets that boast of being currencies, but they are not.
Christine Lagarde (Bloomberg, 2021)
Over 18,000 cryptocurrencies now exist. Some, like Monero or Litecoin, see themselves as digital means of payment, others like BTC are seen as a store of value, similar to gold. Are cryptocurrencies really currencies? This is a philosophical, political and legal question. The answer to this does not lie solely in the hands of Christine Lagarde and the ECB. Even if she likes to act that way.
With the distinction between asset and currency, the head of the ECB is not making a factual statement. She speaks a word of power, in her own interest. The revolution of most cryptocurrencies is that they work without intermediaries, they do not need states or banks to settle. This threatens the monetary policy supremacy of institutions like the European Central Bank. It cannot control crypto as easily as the euro.
The fact is: So far only El Salvador accepts BTC as a currency, other regions such as Lugano in Switzerland at least recognize cryptocurrencies as a means of payment. More and more large companies such as PayPal or Tesla are also doing this, at least in Anglo-Saxon countries. Many states are working on digital central bank money at the same time, the EU under the patronage of Christine Lagarde. This also shows that in the end the definition is about power. A digital euro would be a de facto cryptocurrency, but programmed according to the ideas of the ECB and in their hands. It is therefore highly controversial.
2) Lagarde on crypto and money laundering
BTC is a highly speculative asset, leading to some shady business and interesting and totally reprehensible money laundering activities.
Christine Lagarde (Reuters, 2021)
The reputation as an Eldorado for money laundering has accompanied cryptocurrencies like BTC for a long time. Fact is: In the last five years, 33 billion US dollars have been laundered worldwide with the help of crypto. 2021 alone saw a 30 percent surge, according to US data service provider Chainalysis, which has been investigating crypto-financial crime since 2014. For comparison: In Europe alone, between 715 billion and 1.87 trillion euros are laundered with the euro every year, according to the United Nations Office on Drugs and Crime (UNODC).
Cryptocurrency transactions are stored on blockchains for all to see. This transparency makes it easier to prosecute financial crime, experts like Chainalysis repeatedly emphasize. In fact, data service providers and authorities have been able to clear up many frauds, hacks and money laundering activities in the crypto sector in recent years and convict the people behind them. You can find a more detailed report on the subject in the March issue of BTC-ECHO.
Lagarde on crypto and sanctions
Crypto assets are certainly being used at this moment as a way to circumvent the sanctions decided against Russia and a certain number of actors by many countries around the world.
Christine Lagarde (Virtual Conference, 2022)
After the invasion began, trading between cryptocurrencies and the ruble briefly exploded by 900 percent. The head of the ECB also refers to this. Russian whales moved $62 million worth of fortunes via dubious crypto exchanges in March, both figures being a record since May 2021. Since then, volumes have fallen radically. Many crypto exchanges like Coinbase have banned accounts related to sanctioned individuals from Russia, thousands in all. Also, the gross domestic product of Russia is far too large to be meaningfully covered by crypto.
A detailed report by Chainalysis, the world’s leading crypto data analyst, concludes that there is no evidence that Russia is banking on cryptocurrencies on a large scale. The head of the FBI expressed similar skepticism. The Russians’ ability to circumvent sanctions with cryptocurrencies is “massively overestimated”. The activities on the blockchain are easy to track and the authorities are now experts in it.
So far unnoticed by Lagarde, there is definitely a danger. Russia is turning into a crypto state, it seems. The Premier calls for cryptocurrencies to be integrated into the economy as soon as possible. BTC mining is also to be regulated and promoted by the state. Already, Russia is the third largest miner of BTC in the world, after the US and Kazakhstan.