Bitcoin’s ‘fair value’ — Why does the ECB have a problem with it?

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  • ECB believes Bit­coin has no value
  • The surge in prices threat­ens “mas­sive” col­lat­er­al dam­age to soci­ety, it added

2024 has been a year of mete­oric rise for Bit­coin (BTC). With BTC record­ing a price appre­ci­a­tion of over 100% in the past year and cross­ing the $1 tril­lion mar­ket cap thresh­old, the king coin seems unstop­pable. Amidst this finan­cial eupho­ria, the Euro­pean Cen­tral Bank (ECB) has issued a stark warn­ing though. 

Accord­ing to the ECB, the per­ceived val­ue of BTC is mis­lead­ing. It went on to say that the intrin­sic fair val­ue remains at zero, despite its cur­rent mar­ket performance.

“There is no ‘proof of price’ in a spec­u­la­tive bubble…..The mar­ket cap­i­tal­iza­tion quan­ti­fies the over­all social dam­age that will occur when the house of cards collapses.”

Did the SEC cave in to pressure on Bitcoin ETFs?

In a reveal­ing blog post titled “ETF approval for Bitcoin–The naked emperor’s new clothes,” Ulrich Bind­seil, ECB Direc­tor Gen­er­al for Mar­ket Infra­struc­ture and Pay­ments, and Advi­sor Jür­gen Schaaf argued that the inter­na­tion­al com­mu­ni­ty views Bit­coin with skep­ti­cism, cit­ing min­i­mal social ben­e­fits and reg­u­la­to­ry chal­lenges. How­ev­er, lob­by­ing and social media cam­paigns led to reg­u­la­to­ry com­pro­mis­es, seen as a nod to BTC investments. 

In the U.S, the SEC ini­tial­ly favoured futures ETFs for Bit­coin, con­sid­er­ing them less volatile and manip­u­la­ble. How­ev­er, a court rul­ing in August 2023 forced the SEC to approve spot ETFs.

The ana­lysts remarked, 

“Bit­coin has failed on the promise to be a glob­al decen­tral­ized dig­i­tal cur­ren­cy and is still hard­ly used for legit­i­mate trans­fers. The lat­est approval of an ETF doesn’t change the fact that Bit­coin is not suit­able as a means of pay­ment or as an investment.”

Why is this ‘dead’ coin bouncing high?

The blog high­light­ed that the autumn 2023 ral­ly was fueled by antic­i­pa­tion of a US Fed­er­al Reserve inter­est rate pol­i­cy shift, the halv­ing of BTC min­ing rewards, and the SEC’s approval of a Bit­coin spot ETF. These fac­tors increased investor risk appetite and promised sig­nif­i­cant fund inflows into Bit­coin, essen­tial for sus­tain­ing a spec­u­la­tive bubble. 

How­ev­er, this upsurge might be short-lived, as long-term val­ue tends to align with fun­da­men­tals. This, for Bit­coin, the­o­ret­i­cal­ly could be zero due to its lack of cash flow or returns. 

Crime behind Bitcoin’s resilience 

While the cur­rent ral­ly can be attrib­uted to the fac­tors men­tioned, the ana­lysts point­ed out three fac­tors that explain BTC’s resilience, 

“The ongo­ing manip­u­la­tion of the ‘price’ in an unreg­u­lat­ed mar­ket with­out over­sight and with­out fair val­ue, the grow­ing demand for the ‘cur­ren­cy of crime,’ and short­com­ings in the author­i­ties’ judg­ments and measures.”

How­ev­er, Chainal­y­sis’ “2024 Cryp­to Crime Trends” high­light­ed a dif­fer­ent trend. The last two years have seen sta­ble­coins over­take Bit­coin in terms of illic­it trans­ac­tion vol­umes. Bit­coin still remains preva­lent for spe­cif­ic ille­gal activ­i­ties like dark­net sales and ran­somware. Mean­while, a major­i­ty of cryp­to crimes, par­tic­u­lar­ly scam­ming and trans­ac­tions with sanc­tioned enti­ties, have moved to sta­ble­coins.

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