Key Points
Ulrich Bindseil, ECB director general for market infrastructure and payments, and Jürgen Schaaf, the bank’s advisor for market infrastructure and payments, have published a co-authored blog post.
They titled it “ETF Approval for Bitcoin – the Naked Emperor’s New Clothes”.
Bitcoin’s Value Questioned
In the post, they criticize U.S. regulators for approving spot exchange-traded funds (ETFs) for Bitcoin.
They argue that Bitcoin investments are not safe and that Bitcoin’s fair value is zero.
The economists believe that Bitcoin transactions are inconvenient, slow, and costly.
They also claim that Bitcoin is primarily used for illegal activities, with very little legitimate use.
According to them, Bitcoin has not lived up to its promise of becoming a global decentralized digital currency.
They argue that it is susceptible to fraud and manipulation.
They refer to a previous ECB blog post that debunked what they believe are the false promises of Bitcoin.
They warned of the risks to society and the environment if Bitcoin were to experience another bubble.
The ECB’s stance on Bitcoin has garnered attention on social media from those in the crypto industry.
However, the ECB is not alone in questioning Bitcoin’s potential as a valuable digital currency.
Neel Kashkari, President of the U.S. Federal Reserve Bank of Minneapolis, has also expressed skepticism about Bitcoin’s effectiveness as an inflation hedge.
He believes Bitcoin is just another risky asset with no practical use in real economic scenarios.
Despite the skepticism, pro-crypto organizations insist that Bitcoin is losing purchasing power against the euro.
A recent report by Chainalysis claimed that only 0.34% of cryptocurrency transaction volume in 2023 was linked to criminal activity.
This figure was contrasted with illicit transactions involving euros, which accounted for 1% of the EU’s GDP or €110 billion in 2010.
The ECB recently reported its first annual loss in 20 years, amounting to €1.3 billion ($1.4 billion) for 2023.
The loss was mainly due to increased interest expenses on key liabilities and lower interest income on assets.
Despite the loss, the ECB cited substantial capital and revaluation accounts totaling €46 billion by the end of 2023.
The bank expects further losses in the coming years but reassures that these losses will not affect its ability to conduct effective monetary policy.
The ECB adjusted interest rates from negative territory to a record 4% between July 2022 and September 2023 due to increasing inflation.
Despite the losses, the ECB intends to offset this loss against future profits and will not distribute profits to eurozone national central banks for 2023.
