European Central Bank Director General Proclaims ‘Bitcoin’s Last Stand’ | Proskauer – Blockchain and the Law
On November 30, 2022, amid the tumult raging in the cryptocurrency industry following the latest collapse of a major crypto exchange and its reverberations throughout the crypto-economy, European Central Bank (ECB) Director General Ulrich Bindseil and Advisor Jürgen Schaaf published a post on the ECB Blog, ” Bitcoin’s Last Stand”, which claims that Bitcoin has “never been used to any significant extent for legitimate transactions in the real world” and that its market value is “purely based on speculation” and, on top of that, “The Bitcoin system is a polluter unparalleled.” The sharp rebuke of Bitcoin, the largest crypto-asset by market capitalization, was hurled at what ECB officials see as Bitcoin’s technological shortcomings that make it “questionable as a means of payment” and “rarely used for legal transactions,” given that real Bitcoin transactions are “heavier, slow and expensive.” With the current price of Bitcoin having fallen since its peak of $69K in November 2021, ECB officials described its current price (below $20K) as “an artificially induced last gasp before the road to irrelevance.” The remarks reflect statements from Fabio Panetta, a member of the ECB’s Executive Board, back in April 2022, where he condemned the whole “crypto game”, seeing cryptoassets as “creating instability and uncertainty – the exact opposite of what they promised.” (See also recent statements from a deputy governor of the Bank of England who noted that cryptocurrency was a “gamble” that needed to be regulated in the same way as the traditional financial sector, echoing his own comments from November 202 2 which called for “bringing the activities of the crypto world within the relevant regulatory framework”).
On crypto regulation, unsurprisingly, the ECB blog post takes issue with what the authors consider the laissez-faire attitude lawmakers have taken towards crypto assets (“offering regulation that gave the impression that crypto assets are just another asset class”). instead, in their opinion, to regulate crypto-assets “in proportion to the risks they pose”, as suggested in a recent statement by the US Financial Stability Board (FSB) last July. In the view of ECB officials, staunch supporters of crypto, who have pushed for light regulation, if any, and less scrutiny from existing financial regulators like the SEC, have pushed a false narrative in the name of the technology (“The belief that for any price must be given room for innovation, insists stubbornly”). They also lament the halting progress on comprehensive crypto-asset legislation in the US, although the EU has finalized the text of the Markets in crypto-assets (MiCA) regulation, which will broadly establish rules and consumer/investor protections around crypto-assets at the EU level, which covers so-called asset-referenced tokens (ART), electronic money tokens (EMT) and other crypto-assets not covered by existing EU law. As described in a recent European Parliament briefing on MiCA, the legislation will also regulate the issuance and trading of crypto-assets and the management of the underlying assets, if applicable.
Across the Atlantic, the chief federal regulator of the digital asset space, SEC Chairman Gary Gensler, has voiced his own brand of criticism of the crypto industry. In a recent interview with CNBC, Gensler stated that the crypto space “is a field that is significantly non-compliant” and that his agency will “continue to [three courses of action]…investor education, trying to get the intermediaries properly registered to protect the public and also be the policeman on the beat.” Gensler added that: “We’re going to be clear in our voice about the risks, the speculative risk and what appear to be largely non-compliant players.”
In response to the ECB blog post, some commenters took issue with what they saw as a number of unsubstantiated representations and overblown conclusions about Bitcoin in the post and advanced their own counterarguments… so the debate continues.
Despite the critical tone of the ECB blog post, it should be noted that Bitcoin and its protocol are not necessarily representative of all cryptocurrencies, which are only part of the world of digital assets, which may vary in their utility and technology used. As the ECB blog post said, “The use of a promising technology is not a sufficient condition for an added value of a product based on it.” Indeed, given the recent challenges in the market, it is likely that compelling projects involving digital assets can differentiate themselves from the myriad of tokens by developing use cases involving blockchain technologies that provide intrinsic value and provide utility.
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