The European Central Bank can now be added to the list of crypto skeptics. High-ranking executives go further and say that crypto should not be legitimized or supported by any government or major financial institution.
Ulrich Bindseil (ECB’s director general for market infrastructure) and Jurgen Schaaf (ECB’s markets advisor), wrote that bitcoin is experiencing an ‘artificially induced final gasp before the road towards irrelevance’. According to the authors, the rapid fall in bitcoin’s price over the last few years, and the implosions of major crypto institutions, such as FTX and its subsequent fallout -is a sign that the tide will continue turning even if it is stable.
According to the pair, bitcoin’s value peaked at $69,000 in November 2021. However, it plummeted to $17,000 by mid June this year. In the months that followed, the price of bitcoin has hovered around $20,000 . On Wednesday morning, the price fluctuated around $16,800. According to the authors, bitcoin’s problems were present even before the ongoing drama that ended FTX.
The normally straight-laced, starched members of Europe’s most powerful central bank didn’t seem to be able to contain their laughter when they described what they considered a ‘questionable method of payment’ despite its stated goal of upending international financial systems. They stated clearly that bitcoin had not been used in any way for legal real-world transactions.
Even the most ardent crypto bro can’t deny the fact that bitcoin has been the center of illegal online transactions, and money laundering since years. The long transaction times and associated fees make bitcoin unsuitable as a general currency.
Bindseil and Schaaf attributed the crypto promoters and large cryptocurrency whales who “have the strongest incentives for keeping the euphoria flowing’ on the crypto speculative bubble. They also noted that $17.9 million has been invested by venture capital firms in the crypto and blockchain industries. The process of creating new bitcoins, called Bitcoin mining, takes a lot of energy, and produces a large amount of carbon dioxide. These same complaints were the reason New York State recently issued a moratorium for crypto mining.
The ECB’s pair remain skeptical about crypto regulation. They cited the rise in lobbying efforts, particularly in the U.S., as well as the fact that regulatory frameworks and legislation have taken so long to come into effect because legislators believe they must follow the dictates of innovation. These seem to suggest that any tacit approval for bitcoin by financial institutions or governments only perpetuates the fraud.
The ECB pairs wrote that the alleged sanction of regulation had also tempted traditional financial industry to make bitcoin easier to access. This applies to both asset managers and payment service providers, as well as banks and insurers. Small investors are encouraged to invest in bitcoin by the entry of financial institutions.
Big banks were initially apprehensive about the idea of cryptocurrency (remember that crypto was supposed to “replace” central finance). But seeing the huge profits, banks like JPMorgan Chase or Goldman Sachs decided to go after the bitcoin rainbow in the sky. The collapse of crypto markets in the mid-to-late spring 2022 brought attention to the dangers inherent in volatile digital currencies. While JPMorgan and other major banks are still involved in the action, is advocating more regulation. This may explain why the ECB execs have taken a stand.
This blog post can be read more as a staked opinion than a detailed data-crunching report. The Bank of International Settlements recently suggested that the majority of bitcoin investors have lost their money. Although the report assumed that crypto app users also invested in crypto, its authors pointed out that crypto is a popular choice for young male investors. This is not because they believe in decentralized finance, or that big banks will cease to exist, but rather because they want to make quick money.