European Central Bank advisors have described the U.S. Securities and Exchange Commission’s approval of spot Bitcoin exchange-traded funds in January as “the naked emperor’s new clothes” in their latest blog post.
The advisors, Ulrich Bindseil, ECB Director General for Market Infrastructure and Payments, and Advisor Jürgen Schaaf, criticized Bitcoin, outlining its unsuitability as a means of investment or payment.
ECB Advisors Challenge Bitcoin’s Validity
While the Bitcoin ETF approval in January was seen as validation for the crypto and a sign of its future success, Bindseil and Schaaf disagree. The ECB post outlines that for Bitcoin “disciples,” the ETF approval validates its safety, with the following price rally as evidence of its triumph.
The two advisors argue that Bitcoin’s fair value is zero. They expressed concern over the prospect of another boom and bust cycle for the asset, labeling it as a dire outlook with potentially massive collateral damage, including environmental harm and wealth redistribution disadvantaging the less informed.
The authors also highlighted that Bitcoin transactions remain sluggish, inconvenient, and costly, adding that beyond illicit activities on the dark net, the cryptocurrency has minimal payment usage. Further, even with El Salvador granting it legal tender status, it has failed to establish it as a viable means of payment.
Bindseil and Schaaf argue that the regulatory efforts to curb large-scale criminal use of Bitcoin have been ineffective. The cryptocurrency’s price has also faced a lot of manipulation, and the mining of Bitcoin using its proof-of-work consensus mechanism, which is energy-intensive, continues to pollute the environment on the same scale as entire countries.
The advisors also emphasize that Bitcoin is not a suitable investment due to its inability to generate cash flow. Unlike commodities, they said, Bitcoin lacks use and fails to provide social benefit. In addition, they expressed concern that less financially savvy retail investors were drawn into Bitcoin due to fear of missing out, putting them at risk of financial losses.
ECB’s ‘Last Gasp’ Critique
The latest criticism follows an ECB blog in November 2022 that asserted that Bitcoin was approaching its “last gasp” before becoming irrelevant. The remarks coincided with a market downturn after the FTX crypto exchange collapse.
In the post, the ECB argued against the premise that Bitcoin was a financial asset destined for a continued surge. However, Bitcoin reached its bear market low of $16,000 a week before the post was published but has since had a strong rebound, surging 225% to reach $51,930.
Meanwhile, in response to the question “Why is this dead cat bouncing so high,” the ECB advisors attributed the substantial rebound in Bitcoin to several factors. They pointed to expectations of a potential shift in U.S. Federal Reserve interest rate policy, the upcoming halving event for Bitcoin in April, whereby the block reward for miners is halved, and the recent introduction of spot ETFs as key drivers behind the surge.
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