- The European Central Bank (ECB) gave a zero net value assessment in Bitcoin (BTC).
- The central bank said the crypto asset has failed as a global decentralized currency and a legitimate fund transfer mechanism.
- It called the recent surge of BTC prices a “dead cat bounce.”
The ECB recently criticized Bitcoin in a blog post despite the digital currency’s recent rally and growing institutional adoption sparked by the approval of spot Bitcoin exchange-traded funds in the US and the upcoming halving. It strongly opposed the notion that all these factors can be considered a victory for BTC because it has zero net fair value and it only follows a boom-bust cycle wherein the ensuing “collateral damage will be massive.”
The central bank, referencing its post in November 2022, reiterated how BTC is rarely utilized in legal transactions because it is transactions are “cumbersome, slow, and expensive.” Meanwhile, regulations toward the digital asset as often misconstrued by its supporters as approval. Likewise, banks embracing or promoting it are at risk of having their reputations tarnished due to its volatility.
Bitcoin Transactions
The ECB said that outside of the darknet, where all kinds of illicit activities occur, Bitcoin is hardly used as payment. The organization called it the “currency of crime: financing evil” because it is still being utilized by criminals and terrorists to finance to fund their operations or move their money due to a lack of regulatory initiatives to combat them.
The ECB also pointed out that even the full endorsement of the El Salvador government, which made it a legal tender coupled with $30 worth of free satoshis (sats) to its citizens, failed to kickstart positive changes in Bitcoin’s network.
Investment
Bitcoin was slammed for its inability to generate cash flows like real estate or dividends similar to equities. Additionally, it cannot be used productively like commodities and has no social benefits akin to gold. Furthermore, it is not driven by “subjective appreciation based on outstanding abilities” such as works of art.
The lack of cash flow makes BTC’s fair value zero based on the ECB’s assessment. The central bank also noted that it’s a pitfall for “less financially knowledgeable retain investors” who regularly flock to the coin due to fear of missing out (FOMO).
The ECB even went on to dismiss the surge in Bitcoin prices as nothing but a “dead cat bounce” that will eventually tank to reflect the digital asset’s true valuation.
Bitcoin Mining
Of course, the ECB didn’t miss out on the opportunity to highlight the energy use of Bitcoin’s proof-of-work (PoW) mechanism. It stated that the cryptocurrency “continues to pollute the environment on the same scale as entire countries.”
It adds that the energy consumption of BTC is aggravated by its rising prices, as the resulting higher production costs incentivize Bitcoin mining firms to continue profiting.
Price Manipulation
Citing a Forbes report in 2022, the ECB revealed that 157 crypto exchanges identified 51% of daily Bitcoin trading volume as bogus. The financial institution also noted how scams were prevalent in the earlier cycles of Bitcoin.
For an asset with no fair value, such activities are not surprising at all according to the central bank.
Final Thoughts
The recent blog post of the ECB certainly highlights a damning view on Bitcoin. However, most factors presented here kept a selective scope to paint a darker image of BTC. It failed to mention that there are now solutions for the issues frequently raised regarding the digital asset.
For example, Lightning Network offers a Layer 2 scaling solution to fix Bitcoin’s sluggish and expensive transactions. Then, it fails to touch the new use cases unlocked for Bitcoin like Ordinals, which further supports its value.
The other points of contention of the ECB echoed the same sentiments aired by Vanguard in rejecting Bitcoin ETFs saying it is based on “an immature asset class that has little history, no inherent economic value, no cash flow, and can create havoc within a portfolio” to which we tried our best to straight-up refute in a previous article.