On Wednesday, November 30, 2022, a blog post published by the European Central Bank (ECB) discusses bitcoin, and the authors, Ulrich Bindseil and Jürgen Schaaf, seem to believe that it is the “dbitcoin’s last stand“. The ECB authors add that while bitcoin’s price has consolidated and stabilized, central bank officials have noted that “it is an artificially induced last gasp before the road to irrelevance.“
Members of the European Central Bank believe they predicted bitcoin would head for “irrelevance” before FTX went bust.
Two members of the European Central Bank, Ulrich Bindseil, the director general of the ECB’s market infrastructure and payments division, and Jürgen Schaaf, an adviser to the ECB’s payments sector, have published a blog post on the leading crypto asset, bitcoin.
The ECB blog post is titled “Bitcoin’s last stand” the authors argue that the crypto-currency is losing its relevance. Ulrich Bindseil and Jürgen Schaaf explain that the price of BTC has dropped 76 percent from its all-time high of $69,000, and the authors noted that bitcoin supporters believe that bitcoin is taking a “respite on the way to new highs“.
The ECB authors do not believe that will be the case this time. “It is more likely, however, that this is an artificially induced last gasp before the road to irrelevance“, insist the authors of the ECB blog. “And this was already predictable before FTX went bankrupt and sent the price of bitcoin well below $16,000.“
The members of the European Central Bank further believe that “Bitcoin has never been used in a meaningful way for legal transactions in the real world“. The ECB blog post adds:
Bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like stocks), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of Bitcoin is therefore based on pure speculation.
ECB officials say that banks promoting Bitcoin are running a “reputational risk“, but one blog insists that regulation does not represent a “approval“.
The authors do not necessarily use these terms, but Ulrich Bindseil and Jürgen Schaaf link bitcoin to a Ponzi scheme or pyramid scheme, as the authors note that “speculative bubbles are based on the influx of new money“.
“Big bitcoin investors have the strongest incentives to sustain the euphoria“, the authors of the blog post insist. As regulatory policy has developed around crypto-currency assets, the two ECB officials believe that “regulation can be misconstrued as an endorsement.“Ulrich Bindseil and Jürgen Schaaf are not very enthusiastic about the idea that the crypto space should be allowed to innovate “at all costs”.
According to the ECB authors, the innovative value of bitcoin has been very low compared to the risks that would outweigh the innovation. The ECB paper states:
First, these technologies have so far created limited value for society – no matter how great the expectations for the future. Second, the use of a promising technology is not a sufficient condition for a product based on that technology to add value.
Finally, central bank officials believe that banks that promote bitcoin will bear reputational risk. The ECB members state that because they believe that bitcoin is neither an appropriate investment nor a payment system, “it should not be treated as either in regulatory terms and therefore should not be legitimized.“
The article by Ulrich Bindseil and Jürgen Schaaf is very similar to the opinions of people like Peter Schiff, Charlie Munger, and the hundreds of so-called bitcoin obituaries published over the years. Despite the ECB’s opinion, many people, academic publications, and businesses strongly disagree with the two central bank executives.
EY’s global blockchain leader, Paul Brody, recently stated that this crypto winter is a “Much milder crypto winter than the last one.“Brody also said that crypto price fluctuations are having much less of an impact on the industry’s growth these days. “For the first time ever, price ups and downs aren’t having such a big impact on the industry’s long-term growth“, opined Paul Brody.
In addition, a paper published by Matthew Ferranti, a Harvard Economics PhD candidate, argues that banks should hold some bitcoin. According to Matthew Ferranti, even central banks should consider holding bitcoin, especially central banks facing financial sanctions based on the financial institution’s accessibility to gold reserves.