FRANKFURT (Reuters) – Bitcoin has artificial support and should not be legitimized by regulators or financial firms as it is primarily a speculative instrument, the European Central Bank said on Wednesday ( ECB).
In a blog note written in an unusually harsh tone, the ECB calls the recent stabilization in bitcoin price akin to “an artificially triggered last gasp before descending into insignificance.”
“The big investors in bitcoin are those who have the greatest interest in maintaining the euphoria”, add the authors of the text, Ulrich Bindseil and Jürgen Schaaf, referring to the role played since the end of 2020 by “isolated companies” and “certain venture capitalists”.
They point out that investments by venture capital funds in the cryptoasset and blockchain sectors represented $17.9 billion in mid-July.
They do not, however, provide evidence of price manipulation.
Bitcoin and other cryptocurrencies have been touted in recent years as an alternative form of money meant to protect investors against the adverse effects of inflationary policies by major central banks, including the ECB.
But the 75% fall in the value of bitcoin over the past year, even as inflation accelerated, and a series of scandals involving players in the “crypto” sector, including the bankruptcy of the FTX platform in beginning of the month, restored the advantage to their detractors.
Bitcoin, which had hit nearly $69,000 in November 2021, was trading around $16,800 on Wednesday.
“NOT PAYMENT SYSTEM OR INVESTMENT INSTRUMENT”
Around the world, financial regulators are trying to provide a legal framework for the complex world of “crypto”, which includes activities ranging from the issuance of “stablecoins”, the value of which is supposed to be linked to that of conventional currencies, to the loan of instruments based on the “blockchain”.
The ECB blog believes that this regulation should not be equated with “approval”.
“Since bitcoin does not seem appropriate either as a payment system or as an investment instrument, it should not be treated as either of the two from a regulatory point of view and therefore should not be legitimized”, add the authors of the text.
In an email to Reuters, Bindseil clarified that cryptocurrencies should be framed by regulators as a betting or gambling instrument.
The authors of the text published on the ECB’s website also regret that the interest shown in crypto by asset managers, payment service providers, insurers and banks “suggests to small investors that investing in bitcoin is healthy”.
“The financial industry should be aware of the long-term harms of promoting bitcoin investments despite the short-term profits they may derive from it,” they continue.
On Monday, during a hearing in the European Parliament, ECB President Christine Lagarde said that the draft European regulation on MiCA cryptoassets, currently under discussion, should probably be expanded in the future.
His remarks were interpreted as an allusion to bitcoin, which does not fall within the current scope of the MiCA regulation because it is not linked to any legal entity based in the European Union, which means that future rules could only apply to trading platforms.
(Report Francesco Canepa, French version Marc Angrand, edited by Blandine Hénault)