The bitcoin emblem displayed on a smartphone with euro banknotes within the backgrouund.
Andrea Ronchini | NurPhoto through Getty Images
The European Central Bank gave a powerful critique of bitcoin on Wednesday, saying the cryptocurrency is on a “road to irrelevance.”
In a blogpost titled “Bitcoin’s last stand,” ECB Director General Ulrich Bindseil and analyst Jürgen Schaff mentioned that, for bitcoin’s proponents, the obvious stabilization in its worth this week “signals a breather on the way to new heights.”
“More likely, however, it is an artificially induced last gasp before the road to irrelevance — and this was already foreseeable before FTX went bust and sent the bitcoin price to well below USD16,000,” they wrote.
Bitcoin topped $17,000 on Wednesday, marking a two-week excessive for the world’s largest digital coin. However, it struggled to take care of that stage, falling barely to $16,875. Vijay Ayyar, vice chairman of company growth and worldwide at crypto alternate Luno, warned that the bounce is probably going only a bear market rally and wouldn’t be sustained. “This is just a bearish retest,” he advised CNBC.
The remarks from the ECB officers are well timed, with the crypto trade reeling from one in every of its most catastrophic failures in latest historical past — the downfall of FTX, an alternate as soon as valued at $32 billion. And the market has been largely down within the dumps this yr amid greater rates of interest from the Federal Reserve.
Bindseil and Schaff mentioned that bitcoin did not match the mould of an funding and wasn’t appropriate as a way of cost, both.
“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 legal real-world transactions.”
“Bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like equities), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of Bitcoin is therefore based purely on speculation,” they added.
Analysts say that FTX’s insolvency is more likely to hasten regulation of digital currencies. In the European Union, a new legislation known as Markets in Crypto Assets, or MiCA, is predicted to harmonize regulation of digital property throughout the bloc.
Bindseil and Schaff mentioned it was essential to not mistake regulation as an indication of approval.
“The belief that space must be given to innovation at all costs stubbornly persists,” they mentioned.
“Firstly, these technologies have so far created limited value for society — no matter how great the expectations for the future. Secondly, the use of a promising technology is not a sufficient condition for an added value of a product based on it.”
They additionally raised issues with bitcoin’s poor environmental credentials. The cryptocurrency’s technical underpinnings are such that it requires an enormous quantity of computing energy as a way to confirm and approve new transactions. Ethereum, the community behind bitcoin rival ether, lately transitioned to a brand new framework that backers say would reduce its power consumption by greater than 99%.
“This inefficiency of the system is not a flaw but a feature,” Bindseil and Schaff mentioned. “It is one of the peculiarities to guarantee the integrity of the completely decentralised system.”
It’s not the primary time the ECB has raised doubts about digital currencies. ECB President Christine Lagarde in May mentioned she thinks cryptocurrencies are “worth nothing.” Her feedback got here on the again of a separate scandal for the trade — the multibillion-dollar implosion of so-called stablecoin terraUSD.
— CNBC’s Arjun Kharpal contributed to this report.
