The European Central Bank (ECB) has reiterated its position on Bitcoin (BTC), stating that the approval of spot ETFs for the cryptocurrency does not change its unsuitability as a means of payment or investment.
In a Thursday blog post, the central bank’s Ulrich Bindseil and Jürgen Schaaf wrote that BTC has failed to live up to its promise of being a global decentralized digital currency and continues to be rarely used for legitimate transactions.
The approval of Bitcoin ETFs by the US Securities and Exchange Commission (SEC) in January was seen by some as a validation of the cryptocurrency and a sign of its unstoppable success.
“We disagree with both claims and reiterate that the fair value of Bitcoin is still zero,” the duo wrote.
They warned about the potential risks associated with a renewed boom-bust cycle of Bitcoin, including environmental damage and the redistribution of wealth at the expense of less sophisticated investors.
ECB Remains a Bitcoin Critic
The ECB’s skepticism towards Bitcoin is not new.
In a blog post published in November 2022, the ECB argued that Bitcoin has failed to become a global decentralized digital currency and has also fallen short as a financial asset with inherent value.
The central bank also claimed that BTC continues to face significant challenges as a means of payment.
“Today, Bitcoin transactions are still inconvenient, slow, and costly. Outside the darknet, the hidden part of the internet used for criminal activities, it is hardly used for payments at all.”
Bitcoin has failed to become a global decentralised digital currency, instead falling victim to fraud and manipulation.
The recent approval of an ETF doesn’t change the fact that Bitcoin is costly, slow and inconvenient, argues #TheECBBloghttps://t.co/e9Ek01Dism pic.twitter.com/ddBFsv4g0w
— European Central Bank (@ecb) February 22, 2024
Moreover, the bank questioned Bitcoin’s suitability as an investment.
It argued that the cryptocurrency does not generate any cash flow, dividends, or social benefits like traditional investment assets.
“Less financially knowledgeable retail investors are attracted by the fear of missing out, leading them to potentially lose their money.”
The ECB further claimed that the environmental impact of Bitcoin mining remains a major concern.
The proof-of-work mechanism used in BTC mining consumes substantial amounts of energy, resulting in environmental pollution on a scale comparable to entire countries.
It said that higher Bitcoin prices lead to increased energy consumption by miners, exacerbating the environmental consequences.
ETFs Do Not Increase Bitcoin’s Legitimacy
The ECB also questions the use of ETFs as a means to increase Bitcoin’s legitimacy.
It said that the concentration of assets in ETFs contradicts the diversification principle typically associated with such investment vehicles.
“An ETF with only one asset turns its actual financial logic on its head (although there are others in the United States). ETFs normally aim to diversify risk by holding many individual securities in a market.”
Additionally, Bitcoin already had multiple avenues for speculation, and the problem lies not in the lack of opportunities but rather in the speculative nature of the cryptocurrency.
The article also argued that the history of Bitcoin has been marked by scams and dubious pricing, with a significant percentage of reported trading volume likely being bogus.
It said that BTC’s anonymity has made it attractive for illicit activities such as money laundering and ransomware payments, contributing to its reputation as the “currency of crime.”
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