The European Central Bank (ECB) has taken aim at Bitcoin’s fundamental objectives and purported values in a blog post particularly critical of the recent Spot ETF approval in the US.
Last month, the US Securities and Exchange Commission (SEC) approved the Bitcoin Spot ETF, enabling US investors to buy stakes in pools of the world’s largest cryptocurrency without actually having to buy a coin outright.
This was welcomed by a number of fintech stakeholders, such as BlackRock and Grayscale, two of the most vocal voices calling for the approval. However, the move was met by scepticism from others.
Explaining the ECB’s stance in a blog post, Ulrich Bindseil, the central bank’s Director General for Market Infrastructure & Payments and Jürgen Schaaf, Adviser for Market Infrastructure & Payments, criticised the notion that the approval confirms Bitcoin as a safe investment and that the subsequent investment rally in the coin is ‘proof of an unstoppable triumph’.
“We disagree with both claims and reiterate that the fair value of Bitcoin is still zero,” the blog read. “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.”
In the ECB’s view, Bitcoin’s status as a payment method has failed. This statement also covers the basic mission of the cryptocurrency, that being to establish itself as a global decentralised digital currency.
Bitcoin transactions ‘are still inconvenient, slow, and costly’, the bank asserts, and ‘it is hardly used for payments at all’ outside of criminal activities, particularly on the darknet.
“The regulatory initiatives to combat the large-scale use of the Bitcoin network by criminals have not been successful yet,” Bindseil and Schaaf stated.
Some governments have been warming to Bitcoin, particularly in Latin America. The recently elected President of Argentina, Javier Milei, is a fan of cryptocurrency and has previously expressed a desire for control of the market to be handed over to the private sector.
The oldest and perhaps most widely known example of a government embracing Bitcoin, however, is that of El Salvador. The country’s President, Nayib Bukele, approved Bitcoin as a legal tender in June 2021, with El Savador becoming the first in the world to do so.
However, the ECB is unconvinced by the El Salvadoran example. Bukele’s endorsement of Bitcoin as a legal tender and incentives for El Salvadorans to purchase Bitcoin ‘could not establish it as a successful means of payment’, the blog continued.
Bitcoin’s promise to function as a global payment method has not been realised, the ECB believes, and equally, neither has the objective of making the crypto asset an investment opportunity.
“It does not generate any cash flow (unlike real estate) or dividends (stocks), cannot be used productively (commodities), and offers no social benefit (gold jewellery) or subjective appreciation based on outstanding abilities (works of art).
“Less financially knowledgeable retail investors are attracted by the fear of missing out, leading them to potentially lose their money.”
It is important to note, of course, that there are many out there who disagree, and many investors have made substantial sums of money off of Bitcoin – on the other hand, there are also many who have lost out.
The crypto market in general is notoriously volatile, easily impacted by the decisions of governments, financers and business figures. For example, the value of a coin went from $60,000 in November 2021 to $16,000 in November 2022 and then up again to $51,000 in February 2023.
This volatility is often impacted by scandals in the sector – the collapse of FTX and ongoing legal case against former Binance CEO Changpeng Zhao are some of the most notable to spring to mind. These scandals are another source of the ECB’s distrust of Bitcoin.
The ECB’s open dislike of Bitcoin does not mean that the bank has an inherent disdain toward digital currencies in general, though. Today’s blog post was just the latest in a series of statements by the ECB on digital currencies.
The bank is currently focused on delivering an EU-wide digital euro, a central bank digital currency (CBDC) which it would control and issue. Although it is keen on this ambition, the ECB has noted that such a move will require the approval of MEPs, and it also has the concerns of the traditional banking sector to contend with.
Regardless of its own plans for digital currency, the bank’s views on Bitcoin and cryptocurrency are resoundingly negative.
According to Bindseil and Schaaf, the ECB seems to believe the Spot ETF in the US is causing nothing but trouble by, along with other factors, fueling an investment rally in an asset the bank believes is fundamentally unsound.
“Bitcoin has failed on the promise to be a global decentralised digital currency and is still hardly used for legitimate transfers,” the duo’s overarching message read. “The latest approval of an ETF doesn’t change the fact that Bitcoin is not suitable as means of payment or as an investment.”
