Bank of Italy Warns of Crypto Risks as Intesa Sanpaolo Invests €1 Million in Bitcoin

The Bank of Italy has expressed concerns over the growing integration of cryptocurrencies with traditional financial systems, highlighting potential risks to market stability. In its latest Financial Stability Report, the central bank warned that the increasing ties between crypto and traditional finance could create systemic vulnerabilities. This warning comes as Italy's largest commercial bank, Intesa Sanpaolo, has been actively investing in digital assets, including Bitcoin.

The Bank of Italy noted that the election of Donald Trump and his administration's pro-crypto initiatives have led to significant increases in digital asset prices. This political shift has raised alarms among major financial institutions, which are concerned about the deeper entanglement between traditional finance and the volatile crypto market. The bank cautioned that if these instruments become more closely intertwined with the traditional financial system, it could lead to greater vulnerabilities for markets and intermediaries.

The report also highlighted the concentration of crypto power in a few U.S.-based firms, which could pose conflicts of interest and governance gaps. The bank pointed out that a significant portion of Bitcoin is held by companies operating exclusively in the digital asset sector, many of which are not subject to specific governance requirements. This concentration of power, particularly in the U.S., is a cause for concern, as it could lead to market instability and regulatory challenges.

The Bank of Italy also addressed the issue of stablecoins, noting the disproportionate influence of dollar-backed stablecoins like Tether’s USDT and Circle’s USDC. A widespread run on redemptions could trigger a fire sale of U.S. government bonds and shake global markets. The bank warned that euro stablecoins issued by U.S. firms could undermine EU payment systems and threaten monetary sovereignty.

Despite the central bank's cautionary stance, Intesa Sanpaolo has been actively investing in cryptocurrencies. In January, the bank bought 11 bitcoins worth around €1 million, marking the first direct purchase of bitcoins by an Italian lender. The bank has also underwritten Italy’s first blockchain bond and added spot crypto trading to its proprietary trading desk. Even lawmakers have shown interest, with MP Marcello Coppo calling on Italian banking foundations to invest in Bitcoin.

The Bank of Italy, while wary of the financial risks posed by cryptocurrencies, is not turning its back on blockchain technology. Last year, it announced a permissioned consensus protocol designed to operate with Bitcoin, adding privacy features for validators and pushing toward a central bank digital ledger. This indicates that while the bank is cautious about the financial value of cryptocurrencies, it recognizes the potential of blockchain technology in the financial sector.