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High-ranking payments experts at the European Central Bank (ECB) have criticized the Securities and Exchange Commission’s (SEC) approval of spot exchange-traded funds (ETFs) for bitcoin, likening it to the story of the ‘naked emperor’ – a situation where something is falsely celebrated despite lacking genuine value.
In a recent blog post published by the European Central Bank, Ulrich Bindseil, Director General of Market Infrastructure and Payments, and Jürgen Schaaf, an advisor to the central bank, argued that the SEC’s approval signals a misguided perception of bitcoin as a safe investment, despite its underlying value being effectively zero.
The post highlights the belief among bitcoin enthusiasts that the SEC’s endorsement validates bitcoin investments as secure, bolstered by the preceding market rally. However, Bindseil and Schaaf contend that bitcoin is not a suitable investment or practical means of payment in the real world.
They assert that the combination of lower interest rates and the SEC’s green light has encouraged significant inflows of funds from Wall Street into bitcoin, perpetuating a speculative bubble fueled by investor enthusiasm rather than economic fundamentals.
“While short-term inflows may inflate prices regardless of fundamentals, prices are ultimately tethered to their intrinsic values in the long term,” the post states. “With no cash flow or tangible returns, the fair value of bitcoin remains zero. Detached from economic realities, every price becomes equally implausible—a fertile ground for deceptive practices.”
In a previous blog post from November, Bindseil and Schaaf cautioned against regulatory intervention, highlighting the vested interests of major bitcoin investors in sustaining the hype through extensive lobbying efforts.
Addressing the current situation, they argue that the ongoing rally is sustained by temporary factors, including market manipulation, increased demand for illicit activities, and inadequacies in regulatory responses.
The authors criticize both the SEC’s approval of bitcoin ETFs and the EU’s Markets in Crypto Assets Regulation for perpetuating the misconception that bitcoin is a secure investment without effectively addressing its environmental impact and its role in facilitating criminal activities.
In conclusion, they emphasize that bitcoin’s price level does not reflect its sustainability, lacking economic fundamentals and a fair value basis. Instead, they warn that the increasing market capitalization quantifies the potential societal harm when the speculative bubble inevitably collapses.
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