The European Central Bank has said that bitcoin is its “artificial last gasp before the road to irrelevance,” in a tough intervention against giving the cryptocurrency regulatory legitimacy.
In a scathing blog post, senior European Central Bank (ECB) officials Ulrich Bindseil and Jürgen Schaaf criticized bitcoin for being a hotbed of illegal transactions that poses a reputational risk to any bank involved in the sector.
The value of the digital currency fell from a peak of around $70,000 to $16,000 before stabilizing around $20,000 after the collapse of cryptocurrency exchange FTX. But the ECB authors say that even this stabilization may be false, an artifact of market manipulation rather than genuine demand.
“Large bitcoin investors have the strongest incentives to perpetuate the euphoria,” they wrote. “Manipulations by individual exchanges or stablecoin providers during the first waves are well-documented, but there are fewer stabilizing factors after the likely bubble burst in the spring.”
Others, known as \”algorithmic stablecoins\”, attempt to do the same thing but without any reserves. They have been criticised as effectively being backed by Ponzi schemes, since they require continuous inflows of cash to ensure they don’t collapse.
Stablecoins are an important part of the cryptocurrency ecosystem. They provide a safer place for investors to store capital without going through the hassle of cashing out entirely, and allow assets to be denominated in conventional currency, rather than other extremely volatile tokens.
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What is Stabilcoin?
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A stablecoin, as the name suggests, is a type of cryptocurrency that is supposed to have a fixed value, such as $1 per token. The ways to achieve this vary: the biggest ones like tether and USD Coin are effective banks. They have large reserves of cash, liquid assets, and other investments, and they use those reserves simply to maintain a stable price.
Others, known as “algorithmic stablecoins,” attempt to do the same with no reserve. They have been criticized for being effectively supported by Ponzi schemes, as they require a steady flow of cash to ensure they don’t collapse.
Stablecoins are an important part of the cryptocurrency ecosystem. They provide a safer place for investors to hold capital without going through the hassle of cashing it out entirely, and allow assets to be denominated in common currency rather than other highly volatile tokens.
In an article first published as an opinion piece in Germany’s Handelsblatt newspaper, Bindseil and Schaaf argue that the speculative bubble in bitcoin’s value has led to an explosion in lobbying within the cryptocurrency sector, which aims to treat the cryptocurrency as “just another asset class.” “. In fact, they write, “the risks of cryptoassets are undisputed among regulators.”
“Bitcoin should neither be regulated nor legalized as it appears suitable as neither a payment system nor a form of investment,” the blog post concludes.
The intervention prompted immediate pushback from those within the bitcoin community. Investor Eric Voorhees said the line declaring the currency “artificially inflated” would be “set in a beautiful font, displayed lavishly on heavy matte paper and hang elegantly on my wall”, while venture capitalist Mike Dudas, with a chart showing the reverse of the writing, predicted the euro would fall from 2021 onwards. claiming that it is on its way to “irrelevance”, claiming that it has fallen 20% against the dollar. (Bitcoin has depreciated more than 60% against the euro during the same period).
This is one of the strongest interventions yet against bitcoin by a leading regulator, and by extension the broader cryptocurrency sector. After FTX’s spectacular failure, authorities around the world questioned whether light-touch regulation of the cryptocurrency sector could actually harm consumers. Within the EU, the Markets Regulation of Crypto-Assets (MiCA) is one of the attempts to impose stricter requirements on the sector. The rules, expected to become law in February, will impose new consumer protection requirements on EU-based crypto companies.
Sir Jon Cunliffe, deputy governor of the Bank of England, called on Monday for more lenient regulation from the ECB, telling an audience at Warwick Business School: “We must not wait until we are connected to develop these large and necessary regulatory frameworks that will not undermine greater stability.” prevent possible cryptocurrency shock.”
But the prime minister’s strong support for crypto is preventing the bank from taking action. When he became chancellor in April 2021, Rishi Sunak set up a task force to explore the potential of the digital pound, and a year later asked the Royal Mint to create the government’s first NFT. Although the total size of the crypto market has decreased by about 70% since Sunak ordered, this token has not yet been sold to the public.