Check: Crypto live prices
He proposed banning digital assets that use the proof-of-work method for validating transactions, such as bitcoin (BTC-USD).
EU officials have previously rejected an outright ban on crypto mining, but recent legislation, called MiCA, could require firms to report any potential environmental impact.
The executive board member of the European Central Bank (ECB) opened up with a salvo against the crypto-ecosystem in a statement for the Insight Summit at the London Business School.
He compared crypto to the betting industry, concluding that "many cryptocurrencies are just a new way of gambling".
He added: "On the whole, it is difficult to see a justification for the existence of unbacked crypto-assets in the financial landscape.
"Their combined features mean that they are just speculative assets. Investors buy them with the sole objective of selling them on at a higher price. In fact, they are a gamble disguised as an investment asset."
Watch: Get your money off exchanges' warns Bitboy Crypto after FTX scandal | The Crypto Mile
Panetta warned investors against allocating capital into crypto "as the house of cards is falling".
He argued against one of the philosophical arguments for the existence of bitcoin, which maintains that the world needs a new economic system that does not rely on "trusted" intermediaries such as central banks.
The ECB executive said: "Trust cannot be replaced by religious faith in an algorithm".
Instead, he argued in favour of central banks issuing their own digital currencies, called Central Bank Digital Currencies (CBDCs).
He added: "To harness the possibilities of digital technologies, we must provide solid foundations for the broader digital finance ecosystem.
"This requires a risk-free and dependable digital settlement asset, which only central bank money can provide. And that is why the ECB is working on a digital euro while also considering new technologies for the future of wholesale settlement in central bank money."
The European Commission announced earlier this year it will propose a bill in early 2023 to introduce a euro central bank digital currency (CBDC), while the ECB has been working on developing such a project since July 2021.
The ECB released a Twitter thread yesterday that summarised Panetta's views on "unbacked" crypto assets.
🧵 Crypto-assets have become the bubble of a generation, says Executive Board member Fabio Panetta at the @LBS's Insight Summit 2022.
Crypto-assets are not money. Many are just a new way of gambling https://t.co/S3YOJcq9QM
— European Central Bank (@ecb) December 7, 2022
The senior ECB official criticised the use of "unbacked" crypto-assets. By "unbacked" he referred to bitcoin, ethereum and other cryptocurrencies that are not backed by governmental authority through the fiat currency system, such as the US dollar and British pound.
On Thursday, bitcoin was up 0.5% in 24 hours to $16,850 and ethereum (ETH-USD) rose 1.2% in the past day to $1,240.
Watch: Crypto and climate change: Can blockchain tech stop global warming? | The Crypto Mile