The ECB came down heavily on bitcoin on Wednesday, saying the cryptocurrency is “on the road to becoming something insignificant”.
In a post titled “Bitcoin’s last stand” (https://www.ecb.europa.eu/press/blog/date/2022/html/ecb.blog221130~5301eecd19.en.html) ECB Managing Director Ulrich Bincheil and analyst Jürgen Schaff said that, for bitcoin supporters, the apparent stabilization of its price this week “marks a breather on the road to new heights”.
“More likely, however, it is an artificially induced last support before the road to something trivial – and this was already predictable before the FTX collapse sent the price of bitcoin well below $16,000,” they wrote.
Bitcoin topped $17,000 on Wednesday, hitting a two-week high for the world’s biggest digital currency. However, it struggled to maintain this level, falling slightly to $16,875.
The remarks from ECB officials are timely, with the crypto industry reeling from one of its most devastating failures in recent history – the bankruptcy of FTX,
Bincheil and Schaff said that bitcoin did not fit the mold of an investment and was not suitable as a means of payment either.
“Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment: actual Bitcoin transactions are cumbersome, slow and expensive,” they wrote. “Bitcoin has never been used to any significant extent for legitimate transactions in the real world.”
“Bitcoin is also not suitable as an investment. It doesn’t generate cash flow (like real estate) or dividends (like stocks), it can’t be used productively (like commodities) and it doesn’t provide social benefits (like gold). The market valuation of Bitcoin is therefore purely based on speculation,” they add.
FTX’s insolvency is likely to accelerate digital currency regulation. In the European Union, a new law called Markets in Crypto Assets, or MiCA, is expected to harmonize the regulation of digital assets across the bloc.
Bincheil and Schaff said it’s important not to mistake regulation as a sign of approval. “The belief that innovation must be made room for at all costs remains stubbornly stubborn,” they said.
“First, these technologies have so far created limited value for society — no matter how high expectations for the future. Second, the use of a promising technology is not a sufficient condition for an added value of a product based on it.”
The financial industry, they stress, “should be wary of the long-term damage from promoting investments in Bitcoin – despite the short-term gains it may record,” the two central bank officials warn.
This is not the first time that the ECB has raised doubts about digital currencies. ECB President Christine Lagarde said in May that she believes cryptocurrencies are “worthless.” Her comments came after a separate scandal for the industry – the multi-billion dollar collapse of the so-called stablecoin terraUSD.
