Bitcoin Is Artificially Raised, Shouldn’t Be Approved, ECB Says

Bitcoin is legally supported and should not be sanctioned by regulators or financial companies as it is too similar to gambling, the European Central Bank said on Wednesday.

Bitcoin and other cryptocurrencies have been variously introduced as an alternative form of currency and a shield for inflationary policies pursued by major central banks such as the ECB in recent years.

But a 75 percent drop in the past year, just as inflation reared its head, and a series of scandals including the collapse of the FTX exchange this month have given critics among central banks and regulators ammunition to fight back.

The price of Bitcoin peaked at around $69,000 (around Rs. 56,00,000) in November 2021 before falling to around $17,000 (Rs. 13,81,000) in mid-June 2022, where it is currently hovering.

In blog post Using unusually harsh language, the ECB said that bitcoin’s recent stability was “artificially indeed the last gasp before the road to irrelevance”.

“Big bitcoin investors have a very strong incentive to keep the excitement going,” wrote authors Ulrich Bindseil and Juergen Schaaf. “At the end of 2020, private companies started promoting bitcoin for business expenses. Some venture capital firms are also investing heavily.”

They said VC investment in the crypto and blockchain industry reached $17.9 billion (about Rs. 1.5 lakh crore) as of mid-July but did not provide evidence of price manipulation.

Regulators around the world are writing the rules for the crypto world, a complex ecosystem that ranges from stablecoins that are supposedly backed by regular currencies to the forms of lending that happen on the blockchain, or distributed ledger, that backs those coins.

The ECB’s blog said the regulation could be “misunderstood for approval”.

“Since bitcoin does not appear to be suitable as a payment system or as a means of investment, it should be considered non-existent in terms of regulation and thus should not be legal,” said Bindseil and Schaaf.

In an email to Reuters, Bindseil said cryptocurrencies would be better classified as betting or gambling by regulators.

The authors added in the blog that the involvement of asset managers, payment service providers, insurers and banks with crypto “suggests to small investors that investing in bitcoin makes sense”.

“The financial industry should be aware of the long-term damage of promoting bitcoin investments – despite the short-term benefits they can make,” said the authors of the blog.

The ECB’s words carry weight because it is the premier banker in the eurozone and has a say in the financial regulation of the European Union.

ECB President Christine Lagarde said on Monday that the EU Market on Crypto-assets Regulation (MiCA), which is in the process of being approved, will probably need to be expanded in the future when she calls it “MiCA 2”.

This was referring to bitcoin, which escapes the MiCA because it does not have any legal entity in the EU, which means that only exchange platforms are covered by the rules.

© Thomson Reuters 2022

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