A little over a year ago, on November 10, 2021, the value of one bitcoin hit an all-time high of over $68,000. This was after 10 months of strong gains, as it had started 2021 in the range of $30,000.
After that peak in November, Bitcoin struggled for the rest of 2021 and started 2022 at just over $40,000.
Then came the spring when markets fell in general and cryptocurrency specifically. Inflation and rising interest rates have spooked investors.
On July 1, the value of one bitcoin closed below $20,000, about half of its value at the start of the year. The Dow Jones Industrial Average was also down for the calendar year, but only by 15%.
Bitcoin settled around $20,000 during the late summer and early fall. Then, when the main cryptocurrency exchange FTX crashed on November 8th, the value of Bitcoin fell to just over $16,000, where it remained on December 1st.
The European Central Bank is piling up
With Bitcoin (as well as other cryptocurrencies) at its most precarious position in years, the European Central Bank posted some scathing comments about the cryptocurrency on its blog.
Titled Bitcoin’s Last Stand, the post was written by Ulrich Bindzeil and Jürgen Schaaf of the ECB’s Market Infrastructure and Payments Business Unit.
“Bitcoin’s value peaked at US$69,000 in November 2021 before falling to US$17,000 by mid-June 2022,” the authors wrote. “Since then, the value has fluctuated around US$20,000. For Bitcoin supporters, the apparent stabilization signals a respite on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance.”
The commentary is brutal and wildly pessimistic, assuming the worst about Bitcoin, including claims that the cryptocurrency is being widely used for nefarious purposes.
“Bitcoin was created to overcome the existing monetary and financial system. In 2008, the pseudonym Satoshi Nakamoto published the concept. Since then, Bitcoin has been marketed as a global decentralized digital currency,” the authors say.
“However, Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment: real-world Bitcoin transactions are cumbersome, slow and expensive. Bitcoin has never been used to any significant extent for legitimate transactions in the real world.”
The piece then attempts to dismantle Bitcoin as an investment opportunity.
“In mid-2010, the hope that Bitcoin’s value would inevitably rise to new heights began to dominate the narrative,” the blog post continues. “But Bitcoin is also not suitable as an investment. It does not generate cash flow (like real estate) or dividends (like stocks), cannot be used productively (like commodities) or provide social benefits (like gold). The market valuation of Bitcoin is therefore based solely on speculation.”
The authors’ arguments are contested
The ECB’s insistent comment did not go unnoticed on social media.
“The European Central Bank (@ecb) looked at Bitcoin on their blog today,” wrote Twitter user @joel_john95. “He said that Bitcoin is ‘rarely used’ for ‘legitimate’ transactions. But he offered no statistics to back it up. So it went down the rabbit hole. Time for some numbers.”
“FWIW, the piece doesn’t quantify anything. So I don’t know if ‘rarely used’ means anything.” says @joel_john95. “But one way to think about it is that ±5-7% of global GDP goes to illicit transactions. If Bitcoin transactions are repeated – of course, crypto is a tool for “illegal” transactions.”
“The latest stats on this actually come from @chainalysis,” continued @joel_john95. “Last year was a landmark year as the value of ‘illegal’ transactions was at an all-time high. But this statistic is fueled by higher than usual Bitcoin/ethereum prices. So as a percentage of crypto-GDP it is probably high. “
“The volume of online transactions in 2022 grew approximately sixfold to ±15.6 trillion,” he wrote. “Illegitimate transactions only increased by 79%. This is despite entirely new sectors that have emerged in the market cycle (defi, nft, gaming). Would you think more retail customers mean more crime?’
@joel_john95 then moves on to his main point, comparing illegal traditional currency transactions to cryptocurrency transactions.
“But the real world interacts in dollars, not bitcoins,” he clarifies. “Another way to break down that data is to see what percentage of transactions were illegal. The Chainalysis report suggested that 0.15% of transactions were related to crime. Hmm. So 5% for traditional currency and 0.15% for crypto.”