European Central Bank Director General Proclaims ‘Bitcoin’s Last Stand’ | Proskauer – Blockchain and the Law
On November 30, 2022, amidst the tumult roiling the cryptocurrency industry following the latest collapse of a major crypto exchange and its reverberations throughout the crypto economy, European Central Bank (ECB) Director General Ulrich Bindseil and Adviser Jürgen Schaaf published a post on the ECB Blog, “Bitcoin’s last stand,” declaiming that Bitcoin “has never been used to any significant extent for legal real-world transactions” and that its market valuation is “based purely on speculation” and, on top of that, “the Bitcoin system is an unprecedented polluter.” The scathing rebuke of Bitcoin, the largest crypto asset by market cap, was hurled at what the ECB officials see as Bitcoin’s technological shortcomings that make it “questionable as a means of payment” and “rarely used for legal transactions,” given that real Bitcoin transactions are “cumbersome, slow and expensive.” With the current price of Bitcoin having fallen since it peak of $69K in November 2021, the ECB officials described its current price (below $20K) as “an artificially induced last gasp before the road to irrelevance.” The remarks echo statements made by Fabio Panetta, Member of the Executive Board of the ECB, back in April 2022 where he decried the entire “crypto gamble,” seeing crypto-assets as “bringing about instability and insecurity – the exact opposite of what they promised.” (See also recent statements by a Bank of England deputy governor noting that cryptocurrency was a “gamble” that needs to be regulated similar to the traditional financial sector, echoing his own remarks from November 2022 that urged “bringing the activities of the crypto world within the relevant regulatory frameworks”).
As far as crypto regulation, not surprisingly, the ECB Blog post takes issue with what the authors consider the laissez-faire stance lawmakers have taken toward crypto assets (“offering regulation that gave the impression that crypto assets are just another asset class”), instead of, in their opinion, regulating crypto-assets “commensurate with the risks they pose,” as suggested in a recent statement by the U.S. Financial Stability Board (FSB) this past July. In the ECB officials’ view, staunch proponents of crypto, who have pushed for light regulation, if any at all, and less scrutiny from existing financial regulators such as the SEC, have pushed a false narrative in the name of technology (“The belief that space must be given to innovation at all costs stubbornly persists”). They also lament the halting progress on comprehensive crypto-asset legislation in the U.S., even as the EU has finalized the text of the Markets in crypto-assets (MiCA) regulation, which, generally speaking, would establish rules and consumer/investor protections surrounding crypto-assets at EU level, covering so-called asset-referenced tokens (ART), electronic money tokens (EMT), and other crypto-assets not covered by existing EU law. As described in a recent European Parliament briefing on MiCA, the legislation would also govern the issuance and trading of crypto-assets and the management of the underlying assets, if applicable.
Across the Atlantic, the chief federal regulator of the digital asset space, Chair Gary Gensler of the SEC, has expressed his own brand of criticism on the crypto industry. In a recent interview with CNBC, Gensler stated that the crypto space “is a field that’s significantly non-compliant” and that his agency would “continue on [three courses of action]…investor education, trying to get the intermediaries registered properly to protect the public and also being the cop on the beat.” Gensler added that: “We’re going to be clear in our voice about the risks, the speculative risk and what appears to be largely non-compliant actors.”
In response to the ECB Blog post, some commentators took issue with what they saw as a number of unsubstantiated representations and overbaked conclusions about Bitcoin in the post and advanced their own counterarguments…so the debate continues.
Despite the critical tone taken in the ECB Blog post, it should be noted that Bitcoin and its protocol are not necessarily representative of all cryptocurrencies, which are only one part of the world of digital assets, which can vary in their utility and technology used. As the ECB Blog post stated, “The use of a promising technology is not a sufficient condition for an added value of a product based on it.” Indeed, given the recent challenges in the market, it is likely that the compelling projects involving digital assets can differentiate themselves from the myriad of tokens by developing use cases involving blockchain technologies that bring inherent value and deliver utility.
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