In an article published on the website of the European Central Bank, two executives of this financial institution have strongly attacked Bitcoin. For them, the queen of crypto-currencies is simply a speculative bubble with no use and will eventually disappear. Through this article, we present you the background of the thoughts of two ECB executives while giving an opinion on some of their words.
Bitcoin is neither a means of payment nor a form of investment
While the crypto ecosystem is still being hit hard by the FTX collapse, cryptocurrencies are being accused of all the wrongs. In an op-ed published this November 30, 2022 on the website of the European Central Bank (ECB), two executives of this institution strongly attack Bitcoin. For Ulrich Bindseil, Director General of the ECB and Jürgen Schaaf, Advisor to the ECB, Bitcoin is currently fighting its last battle before disappearing.
Both ECB executives note that Bitcoin was created to fill in gaps in the financial system. Yet the asset has notable limitations both conceptually and technologically. Whether in financial transactions or in investments, Bitcoin has failed, they believe.
Speaking of financial transactions, the two ECB executives note that overall, bitcoin is not used in the real world. The reason is that its transactions are considered slow, cumbersome and expensive.
What Ulrich Bindseil and Jürgen Schaaf say about Bitcoin transactions was true years ago. Since the advent of the Lightining Network, Bitcoin transactions have been fast and almost free. Both executives should have known better.
Turning to the investment side, the two ECB executives believe that Bitcoin is unproven. In particular, they note that since 2010, it has not generated any cash flow or dividends. Furthermore, this asset cannot be used productively or provide social benefits. For both executives, Bitcoin is pure speculation. It cannot be compared to real estate, stocks, commodities or gold which are safe investments.
Our two fellows from the ECB
When you remember that bitcoin was trading at $0.5 in 2010 and is now worth about $16,800. One wonders what profitability the two ECB leaders are talking about. In terms of price growth since 2010, bitcoin (BTC) far outpaces other asset classes.
For comparison, a dollar invested in bitcoin in 2010 was worth nearly $90,000 in December 2019. Yet a dollar of gold in 2010 was worth about $1.34 in December 2019.
Does the lack of consistent regulation make Bitcoin legitimate?
In their op-ed, Ulrich Bindseil and Jürgen Schaaf castigate the impact of pro-bitcoin lobbies in the adoption of laws. The two executives give the example of the United States.
In Uncle Sam’s country, the number of pro-bitcoin lobbies has almost doubled in 3 years, from 115 in 2018 to 320 in 2021. Thus, politicians in the pay of the pro-bitcoin lobby are passing off this asset as an innovation, ignoring the obvious risks it presents to citizens.
Big investors also fund lobbyists who make their case to lawmakers and regulators… Lawmakers have sometimes facilitated the influx of funds by supporting the supposed merits of Bitcoin and proposing regulations that made crypto assets seem like just another asset class. Yet the risks of crypto assets are undisputed among regulators.Still them..
Furthermore, the ECB notes a slowness and lack of consistency in the regulation of Bitcoin worldwide. Europe, for example, has set up the Markets in Crypto-Assets Regulation (MiCA). In the United States, however, there are still differences between the various players, making it difficult to adopt Bitcoin regulation.
Finally, the two ECB executives attack Bitcoin for its alleged carbon impact. Ulrich and Jürgen consider Bitcoin a polluter because of its energy consumption and waste production. Bitcoin mining consumes as much energy as Austria and produces electronic waste comparable to that of the Netherlands.
While it is true that Bitcoin mining consumes a lot of energy, it does not destroy the planet! In fact, Bitcoin mining is increasingly based on renewable energy. Moreover, the energy efficiency of Bitcoin is increasing. Finally, in developing countries where energy demand is low, Bitcoin mining is a powerful pillar for financing renewable energy sources. Right now, Bitcoin is funding biodiversity conservation in Africa’s oldest and richest park.
The harsh indictment of Bitcoin by two ECB executives is understandable. As Nayib Bukele reminds us, central banks are hostile to bitcoin, which wants to take away their monopoly of control over our finances. We have pointed out several times: the ECB’s forum is wrong or dated. Analyses on the value of Bitcoin should be accompanied by a minimum of effort to learn about this asset.
I dream of a world where every citizen has total control over themselves, including their finances. I believe that Bitcoin is one of the tools that will achieve this revolution. Since 2019, I am learning about this cryptocurrency and spreading the word around.