Stockwatch: ECB puts the boot into bitcoin

Central bankers say bitcoin is on ‘the road to irrelevance’, but it is still capable of bouncing back

It seems the European Central Bank (ECB) doesn’t like bitcoin. The cryptocurrency has lost three-quarters of its value since peaking at $69,000 (€65,580) last year, hovering around the $20,000 mark in recent months before taking another turn lower after crypto firm FTX collapsed.

In an unusually blunt blog post last week, the ECB’s Ulrich Bindseil and Jürgen Schaaf said the writing was on the wall even before FTX’s bankruptcy and the apparent price stabilisation was likely an “artificially induced last gasp before the road to irrelevance”. Bitcoin isn’t suitable for payment purposes as it’s “cumbersome, slow and expensive”. It’s not suitable for investment, as it doesn’t generate dividends (like stocks) or cash flow (like property). It can’t be used productively (like commodities) or provide social benefits (like gold). It’s also an “unprecedented polluter”.

These are fair points. However, talking about bitcoin’s “last gasp” raises the problem of timing. In 2017, bitcoin was commonly described as the biggest bubble in financial history. A 60-fold price increase in three years saw all kinds of folks promoting cryptocurrencies, including football manager Harry Redknapp, boxer Floyd “Crypto” Mayweather, and reality TV star Paris Hilton, among others. Thus, when bitcoin collapsed from $20,000 to below $4,000 in late 2018, it looked like the bubble had burst.

Sure, bitcoin had rebounded from larger price declines in the past, but this time the masses had been sucked in and were now bailing out – surely that was it? Well, it wasn’t. Instead, bitcoin was on the road to $69,000. The ECB might be right about this being bitcoin’s “last stand”. Then again, who knows?

Proinsias O'Mahony

Proinsias O'Mahony

Proinsias O’Mahony, a contributor to The Irish Times, writes the weekly Stocktake column