Economists at the European Central Bank (ECB) claim that the continued rise in Bitcoin prices will lead to poverty in society.
Bitcoin increases the rich-poor divide in society
The European Central Bank (ECB) released a study on the negative social impact of Bitcoin's price increase on October 12. As of February this year, the ECB still maintained the view that "Bitcoin has a value of zero".
ECB economists Ulrich Bindseil and JĂŒrgen Schaaf argue that even if Bitcoin prices continue to rise and there is no âbubble burstâ scenario, only early investors will benefit, while latecomers or those who do not own Bitcoin will suffer heavy losses.
They argue that Bitcoin has âdeviatedâ from Satoshi Nakamotoâs original goal of transforming from a global payment system into an investment asset.
The authors mention celebrities, from BlackRock CEO Larry Fink and Galaxy Digital founder Mike Novogratz to athlete Tom Brady and actors Gwenyth Paltrow and Ashton Kutcher, who have helped build the image of Bitcoin as an investment with unlimited growth potential.
The study asserts that Bitcoin is rarely used as a payment method, citing a previous study that incorrectly stated that âBitcoin is the preferred transaction method for criminals.â According to statistics from the US Treasury Department in May 2024, cash remains the top choice for illegal transactions.
Early investors can sell their Bitcoin to later entrants or withdraw their funds to buy physical assets such as luxury goods. Since Bitcoin does not increase the productive capacity of the economy, the authors view Bitcoin as a zero-sum game. This could lead to a redistribution of wealth between newcomers and established market participants, widening the gap between rich and poor in society.
Rather than viewing Bitcoin as a means of payment, its proponents often compare it to gold. This perspective raises questions about the social motives behind choosing Bitcoin as an investment. Although Bitcoinâs price fluctuates, proponents expect its value to increase over time, even if it provides little real benefit to society.
To address these risks, Bindseil and Schaaf propose strict price controls for Bitcoin, which would prevent exploitation and the risk of social unrest due to an unfair distribution of wealth.
They also encourage non-Bitcoin holders to recognize the need to oppose Bitcoin. These people are advised to support regulations that would control or eliminate Bitcoin's price increase.
Finally, the authors emphasize that late investors and non-Bitcoin holders, along with their political representatives, need to be aware that Bitcoin as an investment asset is moving in a direction that redistributes wealth to their disadvantage. Failure to act could tilt the election results in favor of pro-Bitcoin politicians, fueling social division and increasing wealth redistribution.
Crypto Community Outraged by ECB Paper
The European Central Bank's paper has been widely criticized by the cryptocurrency community. Market analyst Tuur Demeester warned that the ECB's paper could encourage governments to impose heavy taxes and additional barriers to cryptocurrencies. He said that central bank economists view Bitcoin as an existential threat that must be countered.
Demeester clarified that the Bitcoin HODLer community needs to take action to ensure that governments respect their fundamental right to own property, noting that Bitcoin is becoming a major political issue in national and international elections.
Marc van der Chijs, co-founder of Bitcoin mining company Hut 8, also expressed concern about the ECB's stance. He asserted that early investors should not be criticized for their vision and risk tolerance. Van der Chijs predicted that if Bitcoin's price doubles or triples by 2025, more politicians may turn against Bitcoin and attempt to crack down harder.
The European Central Bank has called for a global regulatory framework to regulate cryptocurrencies, protect investors and prevent their use in money laundering and terrorist financing.
In June 2023, the European Union passed the MiCA cryptocurrency regulation, which regulates crypto wallets, crypto companies, and stablecoin issuance, and will come into effect from June to December this year.
The ECB also left open the possibility of issuing its own digital currency (CBDC) but still needs more time to research.