ECB calls "Bitcoin's last stand" after FTX collapse

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By Geoffrey Smith 

AiVIF.com -- The European Central Bank isn't the type to pass up an opportunity to kick cryptocurrency while it's down.

Officials at the Frankfurt-based central bank, which has been consistently hostile to private digital currencies for years, said on Wednesday that Bitcoin and other digital assets are facing their "last stand," as their failure to develop a use case and their negative environmental impacts become increasingly clear.

In a blog post, senior officials Ulrich Bindseil and Jürgen Schaaf said that even before the spectacular implosion of crypto exchange FTX - which has dragged lending platform BlockFi into bankruptcy and crippled its rival Genesis - Bitcoin was "on the road to irrelevance," unable to sustain the inflow of new money that all speculative instruments depend on.

That failure, they argued, has only highlighted its lack of an essential use case, being neither a store of value (due to its volatility and its inability to generate returns) nor a means of exchange, like fiat currency.

"The market valuation of Bitcoin is therefore based purely on speculation," they argued, adding that "speculative bubbles rely on new money flowing in."

New money has been scarce indeed since the collapse of the Terra/Luna network earlier this year, which set off a chain of events that led to the much bigger bankruptcy of FTX last month. Both cases exposed widespread failures of risk management and other basic corporate governance principles.

Bindseil and Schaaf noted that the venture capital industry, a big loser in the FTX debacle, still has a powerful incentive to prop up sentiment toward crypto, having invested just under $18 billion in the space. A good part of that money is being diverted to lobby U.S. regulators, they implied.

"In the U.S. alone, the number of crypto lobbyists has almost tripled from 115 in 2018 to 320 in 2021. Their names sometimes read like a who's who of US regulators," the ECB officials said.

That lobbying has contributed to slower progress in regulating crypto in the U.S. than elsewhere, they added, despite the fact that the Financial Stability Board, which coordinates the activities of G20 financial regulators, called in July for crypto assets and markets to be subject to effective regulation and supervision.

Bankman-Fried, in particular, has attracted criticism for his huge donations to the Democratic Party, having given $40M to the party's candidates ahead of the 2022 midterm elections. However, he said on Wednesday that he had given a similar amount to Republican candidates on a "dark" basis, hoping to avoid the wrath of liberal-minded reporters.