A senior European Central Bank (ECB) official on Monday launched an attack against the $1.3 trillion cryptocurrency market, comparing it to a “Ponzi scheme” and calling for a regulatory clampdown to avoid a “lawless frenzy of risk-taking.”

ECB executive board member Fabio Panetta said in a speech at Columbia University: “Crypto enthusiasts marvel at the rise of the crypto market, with many feeling they should take their chances on the crypto gamble.

“An ecosystem has emerged, from miners to intermediaries, all seeking to expand into digital finance.

“Crypto evangelists promise heaven on earth, using an illusory narrative of ever-rising crypto-asset prices to maintain inflows and thus the momentum fuelling the crypto bubble.

“But appearances are deceptive. Satoshi Nakamoto’s dream of creating trustworthy money remains just that – a dream …

“Crypto-assets are bringing about instability and insecurity – the exact opposite of what they promised. They are creating a new Wild West …

“Indeed, the crypto market is now larger than the sub-prime mortgage market was when – worth $1.3 trillion – it triggered the global financial crisis.

“And it shows strikingly similar dynamics.

“In the absence of adequate controls, crypto-assets are driving speculation by promising fast and high returns and exploiting regulatory loopholes that leave investors without protection.

“Limited understanding of risks, fear of missing out and intense lobbying of legislators drive up exposures while slowing down regulation.

“We must not repeat the same mistakes by waiting for the bubble to burst, and only then realising how pervasive crypto risk has become in the financial system.

“And while some may hope to be smarter and get out in time, many will be trapped.

“Now is the time to ensure that crypto-assets are only used within clear, regulated boundaries and for purposes that add value to society.

“And it is time for policymakers to respond to the people’s growing demand for digital assets and a digital currency by making sovereign money fit for the digital age.”

Panetta said crypto assets are widely used for criminal and terrorist activities.

He said research suggests that as much as $72 billion per year, or about 23% of all crypto transactions, is associated with criminal activities.

He said crypto assets may also be used for tax evasion or to circumvent sanctions.

“So crypto-assets are speculative assets that can cause major damage to society,” he said.

“At present they derive their value mainly from greed, they rely on the greed of others and the hope that the scheme continues unhindered.

“Until this house of cards collapses, leaving people buried under their losses …

“We need to make coordinated efforts at the global level to bring crypto-assets into the regulatory purview.

“And we need to ensure that they are subject to standards in line with those applied to the financial system.

“In doing so, we will have to deal with complex trade-offs, balancing the goals of promoting innovation, preserving financial stability and ensuring consumer protection.

“We should make faster progress if we want to ensure that crypto-assets do not trigger a lawless frenzy of risk-taking.

“But this is not enough.

“The growth of crypto-asset markets reveals society’s growing demand for digital assets and instant payments.

“If the official sector – public authorities and intermediaries – does not satisfy this demand, others will step in.

“Central banks must engage even more with digital innovation by upgrading wholesale financial infrastructures, operating fast retail payment systems and preparing for the issuance of central bank digital currencies.

“The ECB is at the forefront of work in all these areas.

“We are focusing on a digital euro, in order to allow citizens to use sovereign money to make payments anywhere in the euro area, while protecting its role as an anchor for the payment and monetary system.”