Economists at the European Central Bank (ECB) have challenged the legitimacy of Bitcoin as a form of currency, citing its limited usage and asserting that its fair value remains zero. In a co-authored blog post titled “ETF Approval for Bitcoin – the Naked Emperor’s New Clothes,” Ulrich Bindseil, ECB’s director general for market infrastructure and payments, and Jürgen Schaaf, the bank’s advisor for market infrastructure and payments, criticized U.S. regulators for approving spot exchange-traded funds (ETFs) for Bitcoin in January.
The economists argue that Bitcoin transactions are inconvenient, slow, and costly, while its primary usage remains in illicit activities with minimal legitimate applications. They contend that Bitcoin falls short of its promise as a global decentralized digital currency due to susceptibility to fraud and manipulation.
Referencing a previous ECB blog post from November 2022, Bindseil and Schaaf emphasized Bitcoin’s failure both as a global decentralized digital currency and as a financial asset with a continuously rising value. They cautioned against the risks to society and the environment if Bitcoin were to experience another bubble, particularly if supported by legislators inadvertently encouraging its growth without necessary regulations.
The ECB economists’ blog post has stirred attention on social media within the crypto industry. The skepticism towards Bitcoin is not unique to the ECB, as other financial authorities, including Neel Kashkari, President of the U.S. Federal Reserve Bank of Minneapolis, have expressed doubts about Bitcoin’s effectiveness as a hedge against inflation.
Proponents of cryptocurrencies often counter such skepticism, arguing that traditional currencies are losing purchasing power against digital assets. A recent report by Chainalysis claimed that only 0.34% of cryptocurrency transaction volume in 2023 was linked to criminal activity, highlighting a relatively small portion compared to illicit transactions involving euros.
Despite the ECB’s recent disclosure of its first annual loss in 20 years, amounting to €1.3 billion ($1.4 billion) for 2023, the central bank remains confident in its ability to conduct effective monetary policy. The ECB intends to offset the loss against future profits and has decided not to distribute profits to eurozone national central banks for 2023.
