ECB Officials' Full Statement on Bitcoin's Failed Promise and ETFs
European Central Bank Director General Ulrich Bindseil and Advisor Jürgen Schaaf express their view that Bitcoin has not fulfilled its potential as a global, decentralized digital currency.
Bitcoin's Failed Promise
Bitcoin has failed on the promise to be a global decentralized digital currency and is still hardly used for legitimate transfers. The latest approval of an ETF doesn’t change the fact that Bitcoin is not suitable as means of payment or as an investment.
On 10 January, the US Securities and Exchange Commission (SEC) approved spot exchange-traded funds (ETFs) for Bitcoin. For disciples, the formal approval confirms that Bitcoin investments are safe and the preceding rally is proof of an unstoppable triumph. We disagree with both claims and reiterate that the fair value of Bitcoin is still zero. For society, a renewed boom-bust cycle of Bitcoin is a dire perspective. And the collateral damage will be massive, including the environmental damage and the ultimate redistribution of wealth at the expense of the less sophisticated.
A post on The ECB Blog in November 2022 debunked the false promises of Bitcoin and warned of the social dangers if not effectively addressed.
Bitcoin's Use as a Payment and Investment
Today, Bitcoin transactions are still inconvenient, slow, and costly. Outside the darknet, it is hardly used for payments at all. The regulatory initiatives to combat the large-scale use of the Bitcoin network by criminals have not been successful yet.
Likewise, Bitcoin is still not suitable as an investment. It does not generate any cash flow or dividends, cannot be used productively, and offers no social benefit or subjective appreciation based on outstanding abilities. Less financially knowledgeable retail investors are attracted by the fear of missing out, leading them to potentially lose their money.
And the mining of Bitcoin using the proof of work mechanism continues to pollute the environment on the same scale as entire countries, with higher Bitcoin prices implying higher energy consumption.
Factors Contributing to Bitcoin's Market Resilience
The recent rally in Bitcoin's price can be attributed to the prospect of an imminent turnaround in the US Federal Reserve's interest rate policy, the halving of the BTC mining rewards, and the approval of the Bitcoin spot ETF by the SEC.
While temporary factors may be fueling the current rally, three structural reasons may explain its seeming resilience: ongoing manipulation of the price in an unregulated market, growing demand for the currency of crime, and shortcomings in authorities' judgments and measures.
Price manipulation and fraud have been prevalent in the history of Bitcoin, and the demand for using crypto for illicit activities continues to rise. Additionally, authorities' misjudgment and lack of effective regulation have contributed to Bitcoin's market resilience.
Conclusion
Bitcoin's price level is not an indicator of its sustainability. There are no economic fundamental data or fair value from which serious forecasts can be derived. It is important for authorities to be vigilant and protect society from money laundering, cyber and other crimes, financial losses, and extensive environmental damage.
The job of addressing these issues has not been done yet, and there is a need for stronger regulatory intervention and oversight in the crypto space.
