The European Central Bank (ECB) has restated its stance on Bitcoin (BTC), affirming that the approval of spot ETFs for the cryptocurrency does not change its unsuitability for use as a form of payment or investment.
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ECB says ETF approval doesn’t change BTC’s unsuitability
In a blog post on Thursday, ECB’s Ulrich Bindseil and Jürgen Schaaf noted that BTC has not delivered on its promise of being a global decentralized digital currency and remains seldom used for legitimate transactions.
The approval of Bitcoin ETFs by the US Securities and Exchange Commission (SEC) in January was viewed by some as a validation of the cryptocurrency and a signal of its unstoppable rise. “We disagree with both assertions and reiterate that Bitcoin’s fair value remains zero,” the pair wrote.
They cautioned about the potential risks associated with a renewed cycle of Bitcoin boom and bust, including environmental harm and wealth redistribution at the expense of less sophisticated investors.
ECB’s Continued Criticism of Bitcoin
The ECB’s skepticism toward Bitcoin is not new. In a blog post from November 2022, the ECB argued that Bitcoin has failed to establish itself as a global decentralized digital currency and has also fallen short as a financial asset with intrinsic value.
Bitcoin has failed to become a global decentralised digital currency, instead falling victim to fraud and manipulation.
— European Central Bank (@ecb) February 22, 2024
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
The central bank also stated that BTC continues to encounter significant challenges as a means of payment. “Currently, Bitcoin transactions are still inconvenient, slow, and expensive. Outside of the darknet, the hidden part of the internet used for criminal activities, it is rarely used for payments at all.”
The bank questioned Bitcoin’s suitability as an investment, arguing that the cryptocurrency does not produce any cash flow, dividends, or social benefits like traditional investment assets. “Less financially savvy retail investors are drawn in by the fear of missing out, potentially leading to losses.”
The ECB also highlighted the environmental impact of Bitcoin mining as 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 noted that higher Bitcoin prices lead to increased energy consumption by miners, exacerbating the environmental effects.
ETFs Do Not Enhance Bitcoin’s Legitimacy
The ECB also questioned the use of ETFs as a means to enhance Bitcoin’s legitimacy. It argued that the concentration of assets in ETFs contradicts the diversification principle typically associated with such investment vehicles.
“An ETF with only one asset overturns its actual financial logic (although there are others in the United States). ETFs normally seek to diversify risk by holding many individual securities in a market.”
Additionally, Bitcoin already had multiple avenues for speculation, and the issue lies not in the lack of opportunities but rather in the speculative nature of the cryptocurrency.
Conclusion
To conclude, the ECB maintains its critical stance on Bitcoin, asserting that the approval of ETFs does not alter its view on the cryptocurrency’s unsuitability for mainstream use. Despite Bitcoin’s growing popularity, the ECB continues to highlight its perceived shortcomings in terms of decentralization, utility, and environmental impact.
Note: It’s a research based article not a financial advice
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