European Central Bank warns that Bitcoin’s days might be over soon
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The world's most popular cryptocurrency, Bitcoin, is on its way to irrelevance, according to the Director General of the European Central Bank and his adviser. In a recent blog post, the duo questioned the utility of Bitcoin as a form of alternate currency and the value it has created for society thus far.
The comments come at a time when the cryptocurrency industry is reeling under a shock from the collapse of FTX, one of the largest crypto exchanges in the world. The currency exchange, which was once valued at $32 billion, crumbled in a matter of days due to a liquidity crunch and high withdrawals from investors and had to file for bankruptcy.
Following the collapse of FTX, Bitcoin prices tumbled to levels below $16,000, a far cry from the $64,000 it commanded just a year ago. A week later, Bitcoin seems to have recovered, with its prices crossing $17,000 on Wednesday. However, Ulrich Bindseil, Director General at the ECB, and Jürgen Schaaf, the Adviser at the bank, look at this rise as Bitcoin's last gasp.
Why Bitcoin won't make it big in the future
The blog post traces back to the origins of Bitcoin and how the concept has been marketed as a decentralized digital currency for the world. However, the experts point out that Bitcoin transactions are slow, expensive, and cumbersome. Although certain businesses have been accepting Bitcoin as a mode of payment, the blog post states that legal real-world transactions using the cryptocurrency have still reached significant levels yet.
Calling Bitcoin's market value based purely on speculation, the ECB experts added that speculative bubbles require waves of investors to pump money, which happened initially with Bitcoin and continues even today. Despite the crypto winter that is set in, venture capitalists continue to pump money into the crypto and blockchain industry.
However, Bitcoin is not an investment since it cannot generate cash flow or give out dividends, or be used as a commodity. So, big Bitcoin investors need to keep the euphoria going around the cryptocurrency, but we might be beginning to see the end.
What about crypto regulation?
The talk about Bitcoin becoming irrelevant might seem absurd when countries around the world are inching closer to regulating cryptocurrencies. For instance, the European Union has agreed on a regulatory package for its Markets in Crypto-Assets (MICA) Regulation. Yet, the authors of the blog post warn that regulation must not be seen as a sign of approval for Bitcoin.
The authors disagree with the notion that space must be given for innovation at all costs and that just because technology is new, a product based on it must be approved and used. Pointing to concerns about pollution and e-waste generated while transacting in Bitcoin, the blog post says that inefficiencies are not flaws but a feature of Bitcoin and is needed to guarantee the system's integrity.
The post also warns financial institutions against damages from promoting Bitcoin investments, even though there might be some short-term gains to be made. In the concluding statement, the authors warn that losses from Bitcoin investments could damage the reputation of the finance industry.
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