The European Central Bank (ECB) has reiterated its position on Bitcoin (BTC), arguing that the world’s leading cryptocurrency has failed to live up to its promise of being a global decentralized digital currency.
The central bank shared its opinion in a Thursday blog post written by advisors Ulrich Bindseil and Jurgen Schaaf, who called Bitcoin “the naked emperor’s new clothes”.
In January, the US Securities and Exchange Commission (SEC) approved 11 spot exchange-traded funds (ETFs) for Bitcoin. The move was seen by the crypto community as a formal approval confirming that investments in BTC are safe and a sign of its unstoppable success.
ECB Says Bitcoin Is A Broken Promise And Has Zero Fair Value
However, the ECB discredited the claims and reiterated that the fair value of the apex cryptocurrency is still zero. They warned about the potential risks associated with a renewed “boom-bust cycle” of Bitcoin, including environmental damage and the redistribution of wealth at the expense of the less sophisticated.
Back in November, the ECB published a blog post arguing that Bitcoin failed to fulfill its original promise to become a global decentralized digital currency. They also said that the cryptocurrency fell short as a financial asset with inherent value.
The central bank then proceeded to list several risks associated with Bitcoin that have “materialized”. They claim that BTC transactions are “still inconvenient, slow, and costly”, and it is hardly being used for payments, apart from in the darknet – the hidden part of the Internet where criminal activities occur.
The bank said that regulatory initiatives to combat the large-scale use of Bitcoin by criminals were yet to bear fruit, and the El Salvadorian government’s attempts to legitimize the cryptocurrency by granting it a legal tender status in 2021 could not establish it as a successful means of payment.
Bitcoin Is Not Suitable As An Investment And Is Harmful To The Environment, Claims ECB
ECB also questioned Bitcoin’s suitability as an investment, arguing that it does not generate any cash flow or dividends, cannot be used productively like commodities and offers no social benefit like gold jewelry or subjective appreciation based on outstanding abilities like works of art.
“Less financially knowledgeable retail investors are attracted by the fear of missing out (FOMO), leading them to potentially lose their money,” said the ECB.
The central bank also criticized the Bitcoin blockchain’s impact on the environment, stating that the proof-of-work consensus mechanism used in mining BTC consumes substantial amounts of energy that results in it polluting the environment “on the same scale as entire countries”.
It said that higher Bitcoin prices lead to increased energy consumption by miners, further exacerbating the environmental consequences.
ETFs Do Not Legitimize Bitcoin
The ECB also questioned the use of ETFs as a means to further legitimize the crypto asset. It said that the concentration of assets in exchange-traded funds contradicts the diversification principle typically associated with such investment vehicles.
“An ETF with only one asset turns its actual financial logic on its head. ETFs normally aim to diversify risk by holding many individual securities in a market,” said the ECB.
According to the central bank, Bitcoin has had multiple avenues for speculation and its problems lie not in the lack of opportunities but rather in its speculative nature.
The article further states that Bitcoin’s history has been marked by scams and dubious pricing, with a significant percentage of reported traded volumes likely being bogus. They called it the “currency of crime” because it is an attractive option for illicit activities such as money laundering and ransomware payments.
Funnily enough, the ECB’s tweet associated with its claims was fact-checked by X. The social media platform referred to a report by Chainalysis, which found that only 0.34% of the total transaction volume of cryptocurrencies in 2023 could be attributed to criminal activity, with Bitcoin’s share in this figure standing at a significantly lower 25%. Meanwhile, illicit transactions using the Euro accounted for 1% of the European Union’s GDP in 2010, amounting to 110 billion EUR.
Bitcoin Trading At Prices Last Observed In 2021 – Its Best Year-To-Date
At the time of writing, Bitcoin (BTC) is trading at $51,197 – down 0.6% in the last 24 hours. The world’s largest cryptocurrency by market capitalization continues its upward trend amidst the listing and trade of spot ETFs and the upcoming block reward halving event in April.
Bitcoin ETFs have amassed more than $5 billion in net inflows since its market debut last month, surpassing silver to rank second among the top commodities in the US. For comparison, Gold ETFs that were launched in 2004 took an entire year to record $3 billion in net inflows.
