Global Shortage: Urgent Supply Issue Threatens Availability
Economists from the European Central Bank (ECB) argue that Bitcoin’s limited use makes it an illegitimate form of currency.
In a blog post titled “ETF Approval for Bitcoin – the Naked Emperor’s New Clothes,” Ulrich Bindseil, the ECB’s director general for market infrastructure and payments, and Jürgen Schaaf, the bank’s advisor for market infrastructure and payments, criticize US regulators for approving spot exchange-traded funds (ETFs) for Bitcoin in January.
According to Bindseil and Schaaf, the approval confirms the belief of Bitcoin supporters that investments in the cryptocurrency are safe and that its recent rally is evidence of an unstoppable triumph. However, the economists disagree with these claims and argue that Bitcoin’s fair value is still zero.
They claim that Bitcoin transactions are inconvenient, slow, and costly. Additionally, they assert that Bitcoin is primarily used for illicit activities, with minimal legitimate use outside of this realm. As a result, Bitcoin fails to fulfill its promise of becoming a global decentralized digital currency due to its susceptibility to fraud and manipulation.
The economists refer to a previous ECB blog post from November 2022 that debunked what they believe to be false promises of Bitcoin. In that analysis, they underscored Bitcoin’s failure as a global decentralized digital currency and as a financial asset with a consistently increasing value.
The ECB also warns about the risks to society and the environment if Bitcoin were to experience another bubble, particularly if it receives support from lawmakers who unintentionally encourage its growth instead of implementing necessary regulations.
The blog post has garnered significant attention on social media within the cryptocurrency industry.
The ECB is not the only financial authority questioning Bitcoin’s potential as a valuable digital currency. Neel Kashkari, President of the US Federal Reserve Bank of Minneapolis, recently expressed skepticism about Bitcoin’s ability to act as an effective hedge against inflation. Kashkari argues that Bitcoin is simply another risky asset with no practical use in real economic scenarios.
Pro-crypto enthusiasts and organizations routinely defend Bitcoin, claiming that the euro is losing purchasing power compared to cryptocurrencies.
According to a report by Chainalysis, 0.34% of cryptocurrency transaction volume in 2023 was linked to criminal activity. In contrast, illicit transactions involving euros accounted for 1% of the EU’s GDP, or €110 billion, in 2010.
In other news, the ECB recently reported its first annual loss in 20 years, amounting to €1.3 billion ($1.4 billion) for 2023. The loss was primarily due to increased interest expenses on key liabilities, while interest income on assets was lower due to fixed rates or long maturities.
Despite the loss, the ECB stated that it had substantial capital and revaluation accounts totaling €46 billion by the end of 2023. The central bank expects further losses in the future but assures that they will not hinder its ability to conduct effective monetary policy, with a return to sustained profits anticipated.
In response to rising inflation caused by the COVID-19 pandemic and the disruption in access to Russia’s energy following its invasion of Ukraine, the ECB adjusted interest rates from negative territory to a record 4% between July 2022 and September 2023.
The ECB remains confident in its ability to operate effectively and fulfill its mandate of maintaining price stability despite the losses. It plans to offset the loss against future profits and has decided not to distribute profits to eurozone national central banks for 2023.
