Bitcoin Is on Its ‘Last Gasp’ Before Irrelevance, ECB Officials Say

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Bitcoin
prices may be stabilizing somewhat after a tumultuous year, but it represents just “an artificially induced last gasp before the road to irrelevance,” officials at the European Central Bank wrote in a blog post Wednesday.

While the bankruptcy of exchange FTX has been the latest blow to crypto prices, the demise of Bitcoin was “already foreseeable” before that, according to the post from ECB Director General Ulrich Bindseil and adviser Jürgen Schaaf.

These two ECB officials join a chorus of crypto skeptics at the central bank. ECB President Christine Lagarde has repeatedly called for digital assets to be reined in, especially given the role of crypto in what she called “funny business” and money laundering. In the U.S., Treasury Secretary Janet Yellen said Wednesday that the collapse of FTX was a “Lehman moment” for crypto, referring to the failure of investment bank Lehman Brothers that preceded the 2008-09 financial crisis.

Bindseil and Schaaf’s post Wednesday covers mainstream criticisms of digital assets, including alleging that “Bitcoin is rarely used for legal transactions” and that the process of crypto mining uses intense amounts of energy globally. They also echoed the notion that crypto represents a speculative bubble that will harm investors—and that those who promote it do so at their own risk.

Bitcoin prices have fallen by more than 75% from their all-time near $69,000 in November 2021, with the total market capitalization of digital assets tumbling to $850 billion from nearly $3 trillion over the same period.

“Speculative bubbles rely on new money flowing in. Bitcoin has also repeatedly benefited from waves of new investors,” Bindseil and Schaaf wrote. “Promoting Bitcoin bears a reputational risk for banks.”

Interestingly, while many critics of crypto have called for strict regulation of digital assets—and the high-profile collapse of FTX is likely to spark newfound scrutiny from regulators—Bindseil and Schaaf argue completely the opposite.

“Regulation can be misunderstood as approval,” the ECB officials wrote. “The current regulation of cryptocurrencies is partly shaped by misconceptions. The belief that space must be given to innovation at all costs stubbornly persists.”

Vehement arguments against crypto are almost as old as digital assets themselves. While a severe drawdown in prices might look like a bursting bubble to many traditional investors and regulators, inside the world of crypto, traders are already gearing up to buy the dip. Bindseil and Schaaf no doubt believe that gambles like that won’t pay off.

Write to Jack Denton at jack.denton@barrons.com