ECB Managing Director and Advisor Declare Bitcoin’s Final Battle

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Friday, December 23, 2022

On November 30, 2022, amid the tumult rocking the cryptocurrency industry following the latest collapse of a major crypto exchange and its repercussions throughout the crypto economy, the Chief Executive Officer of the European Central Bank (ECB) Ulrich Bindseil and Advisor Jrgen Schaaf have published an article on the ECB. Blog, Bitcoins last stand, stating that Bitcoin has never been used in any meaningful way for legal transactions in the real world and its market valuation is based purely on speculation and additionally the Bitcoin system is an unprecedented polluter . The scathing rebuke of Bitcoin, the largest crypto asset by market cap, has been leveled at what ECB officials say are Bitcoins’ technological shortcomings that make it questionable as a means of payment and rarely used for legal transactions, being given that real bitcoin transactions are cumbersome, slow and expensive. With Bitcoin’s current price having fallen since its peak of $69,000 in November 2021, ECB officials have described its current price (below $20,000) as an artificially induced last gasp before the path of irrelevance. The remarks echo statements made by ECB Executive Board member Fabio Panetta in April 2022, where he denounced the whole crypto bet, seeing crypto-assets as bringing instability and insecurity exactly the opposite of what they had promised. (See also recent statements by a Deputy Governor of the Bank of England noting that cryptocurrency was a game that should be regulated in the same way as the traditional financial sector, echoing his own remarks from November 2022 which urged to integrate the activities of the crypto world into the relevant regulatory frameworks).

When it comes to crypto regulation, unsurprisingly, the ECB blog post challenges what the authors see as the laissez-faire stance lawmakers have taken towards crypto assets (offering regulation that gave the impression that crypto assets are just another asset class), instead of, in their view, regulating crypto-assets based on the risks they pose, as suggested by a recent statement from the Financial US Stability Board (FSB) last July. In the view of ECB officials, staunch crypto proponents, who have called for light or no regulation and less scrutiny from existing financial regulators such as the SEC, have been pushing a false narrative on behalf of of technology (The belief that space must be given to innovation at all costs persists stubbornly). They also lament the stalled progress on comprehensive crypto-asset legislation in the US, even as the EU finalizes the text of the Crypto-Asset Markets Regulation (MiCA), which on the one hand broadly, would establish rules and protections for consumers/investors surrounding crypto-assets at the EU level, covering so-called Asset-Referenced Tokens (ART), Electronic Money Tokens (EMT) and other crypto-assets not covered by current European legislation. As described in a recent European Parliament briefing on the MiCA, the legislation would also govern the issuance and trading of crypto-assets and the management of the underlying assets, where applicable.

Across the Atlantic, the top federal regulator of the digital asset space, SEC Chairman Gary Gensler, has voiced his own brand of criticism of the crypto industry. In a recent interview with CNBC, Gensler said the crypto space is an area that is clearly non-compliant and that his agency will continue [three courses of action]educating investors, trying to properly register intermediaries to protect the public and also being the cop on the spot. Gensler added that: We are going to be clear in our voice on risk, speculative risk and what appear to be largely non-compliant players.

In response to the ECB blog post, some commentators took issue with what they saw as a number of unsubstantiated representations and exaggerated conclusions about Bitcoin in the article and advanced their own counter-arguments so that 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 part of the world of digital assets, which can vary in their usefulness and the technology used. As the ECB blog post indicates, the use of a promising technology is not a sufficient condition for the added value of a product based on it. Indeed, given recent market challenges, it is likely that 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 offer usefulness.

2022 Proskauer Rose LLP. National Law Review, Volume XII, Number 357

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