The bitcoin logo displayed on a smartphone with euro banknotes in the background.
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The European Central Bank has strongly criticized bitcoins Wednesday, saying the cryptocurrency is on a “path to irrelevance.”
In a blog post titled “Bitcoin’s Last Stand,” ECB Director General Ulrich Bindseil and analyst Jürgen Schaff said that, for bitcoin proponents, the apparent stabilization of its price this week “signals a pause on the path to new heights”.
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“However, it is more likely to be an artificial last gasp before the path to irrelevance – and this was already predictable before FTX went bankrupt and sent the price of bitcoin well below $16,000,” they wrote.
Bitcoin surged above $17,000 on Wednesday, marking a two-year high for the world’s largest digital coin. However, it struggled to maintain this level, dropping slightly to $16,875. Vijay Ayyar, vice president of business development and international at Crypto Exchange Luno, warned that the rebound is likely just a bear market rally and will not be sustained. “This is just another bearish test,” he told CNBC.
ECB officials’ remarks are timely as the crypto industry reels from one of its most catastrophic failures in recent history – the fall of FTX, an exchange once valued at $32 billion. . And the market has been largely down this year amid higher Federal Reserve interest rates.
Bindseil and Schaff said bitcoin did not fit the mold of an investment, nor was it suitable as a means of payment.
“Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment: real Bitcoin transactions are cumbersome, slow and expensive,” they wrote. “Bitcoin has never been used in any meaningful way for legal real-world transactions.”
“Bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like stocks), cannot be used productively (like commodities), or provide social benefits (like gold) So the market valuation of Bitcoin is based on speculation only,” they added.
Analysts say FTX’s insolvency is likely to accelerate the regulation of digital currencies. In the European Union, a new law called Markets in Crypto Assets, or MiCA, is expected to harmonize the regulation of digital assets across the bloc.
Bindseil and Schaff said it was important not to confuse regulation with a nod of approval.
“The belief in giving space to innovation at all costs persists stubbornly,” they said.
“First, these technologies have so far created limited value for society, regardless of expectations for the future. Second, the use of a promising technology is not a sufficient condition for the added value of a product based on it.”
They also raised concerns about bitcoin’s poor environmental credentials. The technical underpinnings of cryptocurrency are such that it requires enormous computing power in order to verify and approve new transactions. Ethereum, the network behind bitcoin’s rival etherrecently transitioned to a new framework that backers say will reduce its energy consumption by more than 99%.
“This system inefficiency is not a defect but a feature,” Bindseil and Schaff said. “This is one of the particularities of guaranteeing the integrity of the completely decentralized system.”
This is not the first time that the ECB has raised doubts about digital currencies. ECB President Christine Lagarde said in May that she believed cryptocurrencies were “worthless”. His comments came in the wake of a separate scandal for the industry – the multi-billion dollar implosion of the so-called stablecoin terraUSD.
– CNBC’s Arjun Kharpal contributed to this report