Bitcoin heading for irrelevance, says European Central Bank
Just over a year ago, on November 10, 2021, the value of one bitcoin reached its all-time high of more than $68,000. That was after 10 months of strong gains, as it had started 2021 in the $30,000 range.
After the November high, Bitcoin struggled for the remainder of 2021 and began 2022 at a value of just more than $40,000.
Then came spring, when markets fell in general and cryptocurrency fell specifically. Inflation and interest rate increases spooked investors.
On July 1, a bitcoin’s value closed below $20,000, roughly half its value at the start of the year. The Dow Jones Industrial Average was also down for the calendar year, but only 15%.
Bitcoin settled around $20,000 through the late summer and early fall. Then, when the major cryptocurrency exchange FTX crashed on November 8th, bitcoin’s value fell to just above $16,000, where it remained on December 1st.
The European Central Bank is piling on
With bitcoin (as well as other cryptocurrencies) in its most precarious position in years, the European Central Bank published scathing comments about the cryptocurrency on its blog.
Entitled Bitcoin’s Last Stand, the post was written by Ulrich Bindseil and Jürgen Schaaf from the ECB’s Market Infrastructure and Payments business area.
“The value of bitcoin peaked at $69,000 in November 2021 before falling to $17,000 in mid-June 2022,” the authors write. “Since then, its value has hovered around $20,000. For bitcoin followers, the apparent stabilization signals a breather on the way to new highs. More likely, however, it is an artificially induced last gasp before the road to irrelevance.”
The commentary is brutal and wildly pessimistic, implying the worst about bitcoin, including claims that the cryptocurrency is widely used for nefarious purposes.
“Bitcoin was created to overcome the existing monetary and financial system. In 2008, the pseudonymous Satoshi Nakamoto published the concept. Since then, bitcoin has been marketed as a global decentralized digital currency,” the authors say.
“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 legitimate transactions in the real world.”
Next, the piece tries to take apart bitcoin as an investment opportunity.
“By the mid-2010s, the hope that bitcoin’s value would inevitably rise to ever-newer heights began to dominate the narrative,” the blog post continues. “But bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like shares), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of bitcoin is therefore solely based on speculation.”
The authors’ arguments are disputed
The alleged comment from the ECB did not go unnoticed on social media.
“The European Central Bank (@ecb) covered Bitcoin on their blog today,” writes Twitter user @joel_john95. “It said bitcoin is “rarely used” for “legitimate” transactions. But gave no statistics to back it up. Then went down the rabbit hole. Time for some numbers.”
“FWIW, the piece doesn’t quantify anything. So know if ‘rarely used’ means anything.,” says @joel_john95. “But one way to think about it is that ±5-7% of global GDP goes to illegal transactions. If Bitcoin transactions do a multiple – sure, crypto is an instrument of “illegal” transactions.”
“The latest stats for this actually come from @chainalysis,” @joel_john95 continues. “The past year was a landmark year where the value of ‘illegal’ transactions was at an all-time high. But this statistic is driven by Bitcoin/ethereum prices being higher than usual. So as a percentage of crypto GDP, it’s probably high.” “
“Onchain transaction volume in 2022 increased roughly sixfold to ±15.6 trillion,” he writes. “Illegal transactions grew by only 79%. This despite the completely new sectors that appeared in the market cycle (defi, nft, games). Would you believe that more private customers means more crime?”
Then @joel_john95 cuts to his main point by comparing illegal transactions for traditional currency to those for cryptocurrency.
“But the real world interacts in dollars, not Bitcoin,” he clarifies. “Another way to break this data down is to see what percentage of transactions were illegal. The report from Chainalysis suggests that 0.15% of transactions were related to crimes. Hmm. So 5% for traditional currency and 0.15% for crypto.”
