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

• 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.