Bitcoin (BTC) was created nearly 15 years ago as a way to improve upon or replace the existing monetary system, but those hopes haven't panned out, write Ulrich Bindseil, Director General of Market Infrastructure and Payments at the ECB, along with Adviser Jürgen Schaff.
"Bitcoin has never been used to any significant extent for legal real-world transactions," the two said in a blog post titled "Bitcoin's Last Stand" on Wednesday. While bulls seem heartened by bitcoin's ability to hold the $16,000-$20,000 range amid the crypto collapse, Bindseil and Schaff called the current price action "an artificially induced last gasp before the road to irrelevance."
The "conceptual design and technological shortcomings," of bitcoin make it unsuitable for payments, and since the crypto does not generate cash flows or dividends, it's a poor investment as well, they argued.
Trotting out the well-worn Ponzi argument, the two claimed bitcoin's value is reliant on continuing waves of fresh money from new investors, and said "big bitcoin investors have the strongest incentives to keep the euphoria going."
Don't misunderstand regulation as approval, the two warned, criticizing the fast-growing crypto lobbying class as putting forth the idea that crypto is just another asset class worthy of a spot in investor portfolios.
The ECB is not known for championing crypto but the bank's critical assessment of bitcoin came with a warning about how the industry is regulated. In fact, lawmakers and regulators around the world are scrutinizing their approach to supervising crypto following the collapse of crypto exchange FTX, which operated across multiple jurisdictions with little accountability.
On Wednesday, Singapore's financial regulators defended their standards of supervision to lawmakers and explained why a state-owned fund was invested in the fallen crypto enterprise.
Meanwhile, in the European Union – which recently agreed on the text for its sweeping Markets in Crypto Assets (MiCA) regulation – lawmakers expressed concerns about the effectiveness of the rules, and if they'd be tough enough to prevent future collapses.
Bindseil and Schaaf closed out their essay, criticizing the energy-intensive Bitcoin network as "an unprecedented polluter," and warning banks of likely "reputational damage" from promoting bitcoin.