A recent paper published by the European Central Bank (ECB) has drawn widespread criticism from crypto academics. Released on October 12, 2024, the paper attacks Bitcoin, accusing early adopters of exploiting newer investors and warning that the cryptocurrency could potentially destabilize global financial systems.
It calls for strict regulations, including price controls, to mitigate what it claims is an “unfair distribution of wealth” due to Bitcoin’s fixed supply.
The paper alleges that individuals who purchased Bitcoin early or at lower prices have taken advantage of newcomers who enter the market at higher prices, a phenomenon described as exploitation.
The ECB went so far as to suggest either regulating Bitcoin’s price to prevent it from rising or banning it outright, claiming this would reduce societal risks associated with the currency’s increasing value.
It also repeats earlier claims about Bitcoin being a favored currency for illicit activities, although experts have regularly disputed this, noting that fiat currency remains the dominant method for such transactions.
Crypto Community’s Backlash
Criticism from the crypto community has been swift. Academics argue that the ECB’s characterization of Bitcoin fundamentally misunderstands how financial markets operate. Buying assets at a low price and selling them at a high price is the foundation of trading across all asset classes, from real estate to stocks, and Bitcoin is no exception.
They claim that Bitcoin’s value lies in its decentralization, fixed supply, and resistance to government-controlled inflation, positioning it as a hedge against failing fiat currencies. The ECB’s report, critics argue, overlooks these strengths.
Notably, the paper also fails to address key issues such as the devaluation of the euro and other fiat currencies due to inflationary policies, which have caused many investors to seek refuge in Bitcoin as a store of value.
Read also: ECB pushes for unified digital ledger to streamline European capital markets
Since 1999, the euro has lost around 85% of its value against gold, highlighting the inflationary pressures that Bitcoin’s proponents are trying to escape.
ECB’s conflicting stance
Another key area of criticism involves contradictions within the ECB’s arguments. While the paper asserts that Bitcoin holds no real value, it simultaneously claims that the cryptocurrency poses such a significant threat to economic stability that it warrants a ban.
This dichotomy, critics argue, fails to acknowledge the role Bitcoin is playing as a deflationary asset in an inflation-prone world. Furthermore, the ECB’s claims about Bitcoin’s limited use as a payment method are disputed, as data shows increasing adoption in various sectors.
The ECB’s paper comes at a time when central banks around the world are grappling with the rise of decentralized finance (DeFi) and cryptocurrencies.
Many believe this report is part of a broader effort to maintain control over monetary policy in an era where decentralized currencies, led by Bitcoin, are challenging the status quo. This report is the latest in a series of critical publications by central banks seeking to downplay Bitcoin’s role in the future of global finance.
