Notable Warning from the European Central Bank

According to the European Central Bank (ECB), promoting Bitcoin can damage the reputation of banks. The European Central Bank has warned banks against encouraging Bitcoin investments, arguing that the apparent calm of the cryptocurrency will most likely fade and prices will fall further.

In a blog titled “Bitcoin’s Last Stand” on Wednesday by senior executives of the institution, Ulrich Bindseil and Jürgen Schaaf, banks stated that they risk incurring long-term reputational damage as they promote Bitcoin despite the short-term profits they can make. The bank warned that further declines in BTC would damage customer relationships and discredit the entire industry.

“Because Bitcoin does not seem appropriate either as a payment system or as a form of investment, it should not be treated legally and therefore should not be justified,” the bank warned. Despite peaking at $69,000 in November 2021, the world’s largest cryptocurrency by market cap has dropped by as much as 75%, according to data from CoinMarketCap. Earlier this month, the collapse of FTX dropped the price of Bitcoin by over 20% in less than two days.

According to the ECB, the worst is yet to be seen when it comes to Bitcoin. A statement from bank officials read: “For bitcoin advocates, the apparent stabilization signals a respite on the way to new highs. More likely, however, it is an artificially induced last breath before the road to apathy. This was already predictable before FTX went bankrupt and sent Bitcoin price well below USD 16,000.”

The ECB also questioned Bitcoin’s ability to overcome the current monetary and financial system as intended by its creator, Satoshi Nakamoto, more than a decade ago. Despite being marketed as a global decentralized digital currency, Bitcoin’s conceptual design and technological shortcomings have made it questionable as a means of payment. According to Yekilis, “Real Bitcoin transactions are cumbersome, slow and expensive. Bitcoin was never significantly used for legitimate real-world transactions.”

The bank also argued that unlike real estate, Bitcoin cannot generate attraction or be used as efficiently as commodities; therefore, it was not suitable as an investment. According to the bank, “Bitcoin’s market cap is therefore purely speculation.” Despite the ECB’s warning, European banks are quietly entering crypto pools despite the ongoing crypto winter as EU member states temporarily abolish the MiCA regulation.