Senior payment experts from the European Central Bank have characterized the SEC's recent approval of spot exchange-traded funds (ETFs) for bitcoin as a stark illustration of the "Emperor's New Clothes" phenomenon. They argue that this move legitimizes a currency whose intrinsic value as an asset is essentially negligible.
In a blog post authored by Ulrich Bindseil, Director General of Market Infrastructure and Payments, and Jürgen Schaaf, an advisor to the central bank, it is suggested that Bitcoin advocates view the SEC's formal approval as validation of the safety of Bitcoin investments, with the preceding market rally being seen as evidence of an unstoppable victory.
During the mid-2010s, there was a prevailing optimism that the value of bitcoin would inevitably skyrocket. However, the blog post contends that bitcoin is unsuitable both as an investment and as a practical means of conducting transactions.
Bindseil and Schaaf assert that the combination of lower interest rates and the SEC's endorsement has opened the floodgates for bitcoin on Wall Street, attracting significant inflows of capital, which they describe as "the primary fuel in a speculative bubble."
"While short-term capital inflows may significantly impact prices regardless of underlying fundamentals, in the long run, prices will revert to their fundamental values," states the post. "Without any tangible cash flow or returns, the fair value of such assets approaches zero. Disconnected from economic fundamentals, every price becomes equally (im)plausible – a scenario ripe for exploitation by opportunistic actors."
In a previous blog post from November of the preceding year, Bindseil and Schaaf cautioned against regulatory intervention, highlighting that major bitcoin investors possess strong incentives to perpetuate the market euphoria and have mobilized substantial lobbying efforts to sway lawmakers and regulators.
In their latest commentary on the matter, the authors assert, "While the current surge may be fueled by temporary factors, three structural issues could explain its apparent resilience: ongoing manipulation of prices in an unregulated market lacking oversight and fair valuation, increasing demand for bitcoin as a tool for illicit activities, and deficiencies in regulatory judgment and measures."
They argue that both the SEC's approval of bitcoin ETFs and the EU's Markets in Crypto Assets Regulation have contributed to the misconception among less informed observers that bitcoin represents a secure and sound investment, without adequately addressing concerns such as its disproportionate energy consumption and its role in facilitating criminal activities like money laundering and ransomware.
In summary, they contend, "The price of bitcoin does not serve as a reliable indicator of its sustainability. Absent economic fundamentals and a discernible fair value, serious forecasts are impossible. In a speculative bubble, there is no 'proof of price.' Instead, the resurgence of such bubbles underscores the effectiveness of the Bitcoin lobby. The market capitalization merely quantifies the broader societal harm that will ensue when the speculative house of cards inevitably collapses."
