The European Central Bank says bitcoin is headed for irrelevance
The Bitcoin logo appears on a smartphone with euro banknotes in the background.
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The European Central Bank gave a strong criticism of bitcoin on Wednesday, saying the cryptocurrency is on the “road to irrelevance.”
In a blog post titled “Bitcoin’s Last Stand,” ECB President Ulrich Bindseil and analyst Jürgen Schaff said that for bitcoin’s advocates, the apparent stabilization in its price this week signals a lull on the way to new highs.
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“However, more likely, it is an artificially induced last gasp before the road to irrelevance – and this was already predictable before FTX broke and sent the bitcoin price well below USD16,000,” they wrote.
Bitcoin topped $17,000 on Wednesday, marking a two-week high for the world’s largest digital coin. However, it struggled to maintain that level, falling slightly to $16,875. Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, warned that the rebound is likely just a bear market rally and will not be sustained. “This is just a bearish retest,” he told CNBC.
The remarks by the ECB officials are timely, with the crypto industry reeling from one of its most disastrous mistakes in recent history – the demise of FTX, an exchange once valued at $32 billion. And the market has mostly been down in the dumps this year due to higher interest rates from the Federal Reserve.
Bindseil and Schaff said that bitcoin did not fit the form of investment nor was it suitable as a means of payment.
“Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment: real Bitcoin transactions are cumbersome, slow and expensive,” they wrote. “Bitcoin has never been used to any significant extent for legitimate transactions in the real world.”
“Bitcoin is also not suitable as an investment. It does not generate cash flow (like property) or dividends (like stocks), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of Bitcoin is therefore based solely on speculation,” they added.
Analysts say FTX’s insolvency is likely to accelerate the regulation of digital currencies. In the EU, a new law called Markets in Crypto Assets, or MiCA, is expected to harmonize the regulation of digital assets across the bloc.
Bindseil and Schaff said it was important not to mistake regulation as a sign of approval.
“The belief that innovation must be made room for at all costs persists stubbornly,” they said.
“Firstly, these technologies have so far created limited value for society – no matter how great the expectations for the future are. Secondly, the use of a promising technology is not a sufficient prerequisite for an added value of a product based on it.”
They also raised concerns with bitcoin’s poor environmental credentials. The cryptocurrency’s technical foundation is such that it requires an enormous amount of computing power to verify and approve new transactions. Ethereum, the network behind bitcoin rival etherrecently switched to a new framework that supporters say will reduce energy consumption by more than 99%.
“This inefficiency of the system is not a bug, but a feature,” Bindseil and Schaff said. “It is one of the peculiarities to guarantee the integrity of the fully decentralized system.”
It is not the first time the ECB has raised doubts about digital currencies. ECB President Christine Lagarde said in May that she believes cryptocurrencies are “worth nothing.” Her comments came on the back of a separate scandal for the industry – the multibillion-dollar implosion of so-called stablecoin terraUSD.
— CNBC’s Arjun Kharpal contributed to this report.
