Two senior figures at the European Central Bank have claimed Bitcoin is “on the road to irrelevance”.
Ulrich Bindseil, director general of market infrastructure and payments at the ECB, and Jürgen Schaaf, advisor to his department, penned a blog post for the ECB website which first appeared as an opinion piece in a German newspaper.
The value of Bitcoin peaked at $69,000 in November 2021 before falling to $17,000 by mid-June 2022. Since then, the value has tended to fluctuate around $20,000 before hovering around $17,000 and below in the last month.
They claim that ‘big Bitcoin investors’ control the market and are responsible for stabilising Bitcoin amid the crypto winter as well as driving the price up in a bull market.
“For Bitcoin proponents, the seeming stabilisation signals a breather on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance – and this was already foreseeable before FTX went bust and sent the Bitcoin price to well below $16,000,” they wrote.
“The manipulations by individual exchanges or stablecoin providers etc. during the first waves are well documented, but less so the stabilising factors after the supposed bursting of the bubble in spring.
“Big Bitcoin investors have the strongest incentives to keep the euphoria going. Some venture capital firms are still investing heavily.”
They argue that Bitcoin is rarely used for legal transactions despite the hype over its potential for replacing established fiat monetary systems.
“Bitcoin has been marketed as a global decentralised digital currency. However, Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment: real Bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legal real-world transactions,” they said.
They also claim that the widespread belief in Bitcoin’s utility as a store of value – ‘digital gold’ – is off.
“Bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like equities), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of Bitcoin is therefore based purely on speculation,” they wrote.
“Speculative bubbles rely on new money flowing in. Bitcoin has also repeatedly benefited from waves of new investors.”
Writing that ‘regulation can be misunderstood as approval’, they also slam the persistence of the belief that space must be given to innovation – for example blockchain – at all costs.
“These technologies have so far created limited value for society – no matter how great the expectations for the future,” they said. “The use of a promising technology is not a sufficient condition for an added value of a product based on it.
“The supposed sanction of regulation has also tempted the conventional financial industry to make it easier for customers to access bitcoin. This concerns asset managers and payment service providers as well as insurers and banks. The entry of financial institutions suggests to small investors that investments in Bitcoin are sound.”
Issuing a warning that promoting Bitcoin bears a reputational risk for banks, it said Bitcoin “should not be legitimised”.
Cryptocurrency shorts
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Digital asset market maker Keyrock has raised $72m in a Series B round of funding featuring Ripple, SIX Fintech Ventures and Middlegame Ventures.
Cryptocurrency exchange Kraken has made 1,100 people redundant, approximately 30% of its total workforce, amid the crypto winter.
Crypto prices
The overall market cap of the 21,800 coins is at $860 billion at the time of writing (7am UK), a 1% increase in the last 24 hours.
For round-ups of recent cryptocurrency news developments, click here.
For valuations of the top 100 coins by market cap in US dollars, plus 24-hour price change, see below.