The European Central Bank says bitcoin is on an “artificially induced last gasp before the path of irrelevance,” in a scathing intervention arguing against granting regulatory legitimacy to the cryptocurrency.
In a strongly worded blog post, European Central Bank (ECB) senior executives Ulrich Bindseil and Jürgen Schaaf criticized bitcoin for being a hotbed of illegal transactions that pose a reputational risk for any bank that gets involved. in the area.
The value of the digital currency fell from a high of nearly $70,000 to a low of $16,000 since the collapse of crypto exchange FTX, before stabilizing at around $20,000. But the ECB authors argue that even this stabilization is likely to be fake, an artifact of market manipulation rather than genuine demand.
“Big bitcoin investors have the greatest incentive to keep the euphoria going,” they wrote. “Manipulation by individual exchanges or stablecoin providers etc. during the early waves is well documented, but less so the stabilizing factors after the supposed bubble burst in the spring.”
Others, called \”algorithmic stablecoins\”, attempt to do the same thing but without any reservations. They have been criticized as being effectively backed by Ponzi schemes, as they require continuous inflows of cash to ensure they don’t collapse.
Stablecoins are an important part of the cryptocurrency ecosystem. They offer investors a safer place to store their capital without having to cash out entirely, and allow assets to be denominated in conventional currency, rather than other highly volatile tokens.
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Questions and answers
What is a stablecoin?
Spectacle
A stablecoin, as the name suggests, is a type of cryptocurrency believed to have a stable value, such as $1 per token. How they achieve this varies: the major ones, such as tether and USD Coin, are actually banks. They hold large reserves of cash, liquid assets, and other investments, and simply use these reserves to maintain a stable price.
Others, known as “algorithmic stablecoins”, attempt to do the same but without any reservations. They have been criticized as being effectively backed by Ponzi schemes, as they require continuous inflows of cash to ensure they don’t collapse.
Stablecoins are an important part of the cryptocurrency ecosystem. They offer investors a safer place to store their capital without having to cash out entirely, and allow assets to be denominated in conventional currency, rather than other highly volatile tokens.
In the article, which was first published as an opinion piece in German newspaper Handelsblatt, Bindseil and Schaaf argue that the speculative bubble in bitcoin’s value has led to an explosion of industry lobbying. the cryptocurrency that aimed to treat crypto as “just another asset class”. ”. In fact, they write, “the risks of crypto assets are undisputed among regulators.”
“As bitcoin does not appear to be suitable as a payment system or a form of investment, it should not be treated as either in regulatory terms and therefore should not be legitimized,” the blog concludes. .
The intervention triggered an immediate pushback from members of the Bitcoin community. Investor Eric Voorhees said the line declaring the currency “artificially inflated” would be “set in a beautiful typeface, lavishly displayed on thick matte paper and hung elegantly on my wall”, while venture capitalist Mike Dudas contrasted the post with a chart showing the euro’s 20% decline against the dollar since 2021, arguing that it was the euro that was on its way to “relevance”. (During the same period, bitcoin fell more than 60% against the euro).
This is one of the strongest interventions to date against bitcoin, and by extension the broader cryptocurrency sector, by a leading regulator. After the spectacular failure of FTX, authorities around the world questioned whether light regulation of the cryptocurrency industry could cause real harm to consumers. Within the EU, the Crypto-Asset Markets Regulation (MiCA) is an attempt to impose stricter requirements on the industry. The rules, which are expected to be voted on in February, will impose new consumer protection requirements on EU-based crypto companies.
Bank of England Deputy Governor Sir Jon Cunliffe called for regulation on Monday, in softer terms than the ECB, telling an audience at Warwick Business School: “We must not wait for it to be big and connected to develop the regulatory frameworks needed to prevent a crypto shock that could have a much greater destabilizing impact.
But the bank is hampered in its ability to act by the prime minister’s strong support for crypto. When he was chancellor in April 2021, Rishi Sunak launched a task force to examine the potential for a digital ledger, and a year later he asked the Royal Mint to create the government’s first NFT. This token has still not been sold to the public, although the overall crypto market size has dropped by around 70% since Sunak issued the order.
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