It’s no surprise that central banks are generally not favourably disposed towards crypto. It’s no secret that the European Central Bank is more hostile than most to crypto.
The value of bitcoin peaked at USD 69,000 in November 2021 before falling to USD 17,000 by mid-June 2022. Since then, the value has fluctuated around USD 20,000. For bitcoin proponents, the seeming stabilization 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 send the bitcoin price to well below USD16,000.
The post (authored by Ulrich Bindseil, ECB director general, and ECB adviser Jurgen Schaaf) offers an enjoyable replay of the greatest hits of bitcoin bashing. It’s an “unprecedented polluter”; its “technological shortcomings make it questionable as a means of payment”; its value is “based purely on speculation” and “manipulations by individual exchanges or stablecoin providers”.
The more interesting bit is the ECB’s thoughts on how or even whether crypto should be regulated in the wake of the many embarrassing collapses this year.
It’s fair to say that Bindseil and Schaaf are firmly in the “let it burn” school of thought, arguing that “regulation can be misunderstood as approval” (while making a snide comment about the mercenary instincts of some former US regulators). FTAV’s emphasis below:
. . . Large investors also fund lobbyists who push their case with lawmakers and regulators. In the US alone, the number of crypto lobbyists has almost tripled from 115 in 2018 to 320 in 2021. Their names sometimes read like a who’s who of US regulators.
But lobbying activities need a sounding board to have an impact. Indeed, lawmakers have sometimes facilitated the influx of funds by supporting the supposed merits of Bitcoin and offering regulation that gave the impression that crypto assets are just another asset class. Yet the risks of crypto assets are undisputed among regulators. In July, the Financial Stability Board (FSB) called for crypto assets and markets to be subject to effective regulation and supervision commensurate with the risks they pose — along the doctrine of “same risk, same regulation”.
However: legislation on crypto-assets has sometimes been slow to ratify in recent years — and implementation often lags behind. Moreover, the different jurisdictions are not proceeding at the same pace and with the same ambition: While the EU has agreed on a comprehensive regulatory package with the Markets in Crypto-Assets Regulation (MICA), Congress and the federal authorities in the US have not yet been able to agree on coherent rules.
The current regulation of cryptocurrencies is partly shaped by misconceptions. The belief that space must be given to innovation at all costs stubbornly persists. Since Bitcoin is based on a new technology — DLT/Blockchain — it would have a high transformation potential. 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.
The supposed sanction of regulation has also tempted the conventional financial industry to make it easier for customers to access bitcoin. This concerns asset managers and payment service providers as well as insurers and banks. The entry of financial institutions suggests to small investors that investments in Bitcoin are sound.
. . . [But] since Bitcoin appears to be neither suitable as a payment system nor as a form of investment, it should be treated as neither in regulatory terms and thus should not be legitimised. Similarly, the financial industry should be wary of the long-term damage of promoting Bitcoin investments — despite short-term profits they could make (even without their skin in the game). The negative impact on customer relations and the reputational damage to the entire industry could be enormous once Bitcoin investors will have made further losses.
Et tu, ECB? Or as the FT’s markets-news editor Adam Samson puts it in what he assures us is his first ever meme: