Senior payments experts at the European Central Bank have characterized the SEC’s approval of spot exchange-traded funds (ETFs) for Bitcoin as an illustration of the ‘naked emperor’s new clothes,’ arguing that it legitimizes a currency whose true asset value is effectively zero.
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, assert that Bitcoin lobbyists view the SEC’s formal approval as a validation that Bitcoin investments are safe. They also suggest that the recent price rally reflects an unstoppable success.
The narrative surrounding Bitcoin gained momentum in the mid-2010s, driven by the belief that its value would continually rise. However, the authors contend that Bitcoin is unsuitable both as an investment and as a practical means of payment.
Bindseil and Schaaf argue that the combination of lower interest rates and the SEC’s approval has opened the gates for Wall Street to invest in Bitcoin, leading to significant capital inflows that fuel a speculative bubble. They state, “While in the short run, incoming capital may significantly influence prices, these will eventually revert to their fundamental values over time.” They further explain that without any cash flow or returns, the fair value of an asset can be considered zero. “In a market disconnected from economic fundamentals, every price becomes equally plausible, creating an ideal environment for opportunistic sellers.”
In a previous blog post from November, the authors cautioned lawmakers against regulatory interventions, noting that large Bitcoin investors are highly motivated to sustain market enthusiasm and have employed many lobbyists to advocate for their interests.
In their recent commentary, Bindseil and Schaaf emphasize that while the current rally is driven by temporary factors, three structural issues contribute to its apparent durability: ongoing manipulation of prices in an unregulated market, rising demand for illicit financial activities, and shortcomings in the authorities’ responses.
They contend that both the SEC’s endorsement of Bitcoin ETFs and the EU’s Markets in Crypto Assets Regulation mislead less informed investors into believing Bitcoin is a secure investment, while failing to address critical issues like its excessive energy consumption and associations with financing criminal activities, such as money laundering and ransomware.
In summary, the authors conclude, “Bitcoin’s price level does not reflect its sustainability. There are no underlying economic fundamentals and no fair value for meaningful forecasts. The notion of ‘proof of price’ is absent in a speculative bubble. Instead, the re-inflation of this bubble exemplifies the effectiveness of the Bitcoin lobbying effort. The market capitalization represents the potential social damage that will arise when this unstable structure ultimately collapses.”