A little over a year ago, on November 10, 2021, the value of one bitcoin hit its all-time high at more than $68,000. This was after 10 months of strong gains as 2021 had started in the $30,000 range.
After that November high, Bitcoin struggled for the remainder of 2021, starting 2022 valued at just over $40,000.
Then spring came when markets in general fell and cryptocurrency in particular collapsed. Inflation and rate hikes scared 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 also declined over the calendar year, but only by 15%.
Bitcoin settled around $20,000 in late summer and early fall. Then, when major cryptocurrency exchange FTX crashed on November 8th, Bitcoin’s value dropped to just above $16,000 where it remained on December 1st.
The European Central Bank continues
With Bitcoin (like other cryptocurrencies) in its most precarious position in years, the European Central Bank published scathing comments about the cryptocurrency on its blog.
The article, entitled “Bitcoin’s Last Stand,” was authored by Ulrich Bindseil and Jürgen Schaaf from the ECB’s Market Infrastructure and Payments Business Unit.
“The value of Bitcoin peaked at $69,000 in November 2021 before falling to $17,000 by mid-June 2022,” the authors write. “Since then, the value has fluctuated around $20,000. For Bitcoin proponents, the apparent stabilization signals a breather on the way to new highs.
The commentary is brutal and extremely pessimistic, foreshadowing the worst about Bitcoin, including claims that the cryptocurrency is being widely used for nefarious purposes.
“Bitcoin was created to overthrow 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,” say the authors.
However, bitcoin’s conceptual design and technological flaws make it questionable as a means of payment: real bitcoin transactions are cumbersome, slow, and expensive. Bitcoin has never been used to any significant extent for legitimate real-world transactions.”
Then the piece tries to take bitcoin apart as an investment opportunity.
“By the mid-2010s, hopes that the value of Bitcoin would inevitably soar to new heights began to dominate the narrative,” the blog post continues. “But Bitcoin is also not suitable as an investment. It doesn’t generate cash flow (like real estate) or dividends (like stocks), can’t be used productively (like commodities) or benefit society (like gold). The market valuation of Bitcoin is therefore based on pure speculation.”
The arguments of the authors are controversial
The ECB’s confident comment did not go unnoticed on social media.
“The European Central Bank (@ecb) blogged about bitcoin today,” wrote Twitter user @joel_john95. “It said bitcoin is ‘rarely’ used for ‘legal’ transactions. But no statistics were offered to back it up. So it went down the rabbit hole. Time for some numbers.”
“FWIW, the piece doesn’t quantify anything. So I know if ‘rarely used’ means anything,” says @joel_john95. “But you can think of it as ±5-7% of global GDP being used for illicit transactions. If bitcoin transactions do multiples – sure, crypto is a vehicle for ‘illegal’ transactions.”
“The latest stats for this are actually from @chainalysis,” continues @joel_john95. “Last year was a landmark year, with the value of ‘illegal’ transactions hitting an all-time high. But this stat is fueled by Bitcoin/Ethereum prices being higher than usual. So as a percentage of crypto GDP, it’s probably high. “
“Onchain transaction volume increased roughly six-fold to ±15.6 trillion in 2022,” he writes. “Illegal transactions only increased by 79%. This is despite the completely new sectors that have emerged in the market cycle (Defi, NFT, Gaming). You would think that more retail customers means more crime?”
Then @joel_john95 gets to his main point by comparing illicit transactions for traditional currency versus cryptocurrency.
“But the real world interacts in dollars, not bitcoin,” he clarifies. “Another way to break down this data is to see what percentage of transactions were illegal. Chainalysis’ report suggests that 0.15% of transactions were linked to crime. hmm So 5% for traditional currencies and 0.15% for crypto.”