ECB Says Bitcoin Is Artificially Propped Up, Shouldn’t Be Legitimised

Bitcoin is promoted and should not be approved by regulators or financial institutions because it is too similar to gambling, the European Central Bank said on Wednesday.

Bitcoin and other cryptocurrencies have been introduced variously as an alternative form of money and a shield from inflationary policies enforced by major central banks such as the ECB in recent years.

But the 75% decline over the past year, as inflation, reared its head, and a string of scandals including the collapse of the FTX exchange this month have given critics among central banks and regulators weapons to attack.

Bitcoin’s value peaked at $69,000 in November 2021 before falling to $17,000 in mid-June 2022, where it currently hovers.

In a blog post using ominous language, the ECB said that bitcoin’s recent stabilization is “the last gasp before the road to irrelevance”.

“Large bitcoin investors have strong incentives to continue the boom,” wrote authors Ulrich Bindseil and Juergen Schaaf. “At the end of 2020, private companies started to promote bitcoin through corporate funds. Some financial companies are still making a lot of money.”

They said VC investment in the crypto and blockchain industry reached $17.9 billion in mid-July but did not provide evidence of price manipulation.

Regulators around the world write the rules of the crypto world, a complex ecosystem that ranges from stablecoins backed by conventional money to forms of lending that take place on the blockchain, or distributed ledger, that validates the money.

The ECB blog said the policy could be “misunderstood as approved”.

“Since Bitcoin does not seem to be suitable as a means of payment or as a means of investment, it should not be treated as illegal and therefore should not be legalized,” said Bindseil and Schaaf.

Bindseil said cryptocurrencies would be strictly regulated like betting or gambling.

The authors added in the blog that the integration of asset managers, payment service providers, insurers, and banks with crypto “shows the few investors that money in bitcoin is good”.

“The financial industry needs to be wary of the long-term risks of promoting bitcoin investments — despite the near-term profits they can make,” the blog’s authors said.

The comments of the ECB have weight because it is the supreme supervisor of the banks of the eurozone and has a say in the monetary policy of the European Union.

ECB President Christine Lagarde said on Monday that the EU Market on Crypto-assets Regulation (MiCA), which has been approved, may have to be extended in the next period, which she called “MiCA 2”.

This is probably related to bitcoin, which avoids MiCA because it does not have any legal entity in the EU, meaning that only exchange platforms are covered by the rules.

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