Just over a year ago, on November 10, 2021, the value of one bitcoin hit its all-time high at over $68,000. This came after 10 months of strong gains, as it had started 2021 in the $30,000 range.
After that November high, Bitcoin struggled for the rest of 2021 and started 2022 worth just over $40,000.
Then came spring when the markets fell in general and the cryptocurrency specifically crashed. Inflation and interest rate hikes have scared investors.
On July 1, the value of one bitcoin closed below $20,000, about half its value at the beginning of the year. The Dow Jones Industrial Average was also down for the calendar year, but only 15%.
Bitcoin stabilized at around $20,000 in late summer and early fall. Then, when major cryptocurrency exchange FTX crashed on Nov. 8, bitcoin’s value fell to just over $16,000, where it remained on Dec. 1.
The European Central Bank is moving forward
With bitcoin (as well as other cryptocurrencies) in its most precarious position in years, the European Central Bank has posted scathing comments about the cryptocurrency on its blog.
Entitled Bitcoin’s Last Stand, the post was written by Ulrich Bindseil and Jürgen Schaaf of the ECB’s Market Infrastructure and Payments business area.
“The value of bitcoin peaked at $69,000 in November 2021 before declining to $17,000 in mid-June 2022,” the authors write. “Since then, the value has hovered around $20,000. For bitcoin proponents, the apparent stabilization signals a pause on the road to new heights. More likely, however, it is an artificially induced jolt before the road to high ‘irrelevance’.
The commentary is brutal and wildly pessimistic, suggesting the worst about bitcoin, including claims that the cryptocurrency is widely used for nefarious purposes.
“Bitcoin was created to surpass 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 state.
“However, Bitcoin’s conceptual design and technological shortcomings 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 legal transactions in the real world.”
So the piece tries to debunk bitcoin as an investment opportunity.
“In the mid-2010s, the hope that the value of bitcoin would inevitably rise to ever 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 flows (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 disputed
The ECB’s assertive comment did not go unnoticed on social media.
“The European Central Bank (@ecb) covered Bitcoin on their blog today,” writes Twitter user @joel_john95. “He said bitcoin is ‘rarely used’ for ‘legal’ transactions. But he didn’t offer any statistics to back it up. So he 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 make a multiple – sure, cryptography is a tool of ‘illegal’ transactions.”
“Latest stat for this actually comes from @chainalysis,” continues @joel_john95. “Last year was a pivotal year as the value of ‘illegal’ transactions was consistently high. But this statistic is fueled by the fact that Bitcoin/ethereum prices are higher than usual. So as a percentage of the crypto-GDP is probably high.”
“Onchain transaction volume in 2022 increased nearly sixfold to ±15.6 trillion,” he writes. “Illicit transactions grew by only 79%. This is despite completely new sectors that have emerged in the market cycle (defi, nft, gaming). Would you think that more retail customers means more crime?”
So @joel_john95 gets to the main point comparing the illicit transactions for traditional currency with those for cryptocurrency.
“But the real world interacts in dollars, not in Bitcoin,” he clarifies. “A different way to break that data down is to see what percentage of transactions were illicit. Chainalysis’ report suggests 0.15% of transactions were related to crimes. Hmm. So 5% for traditional currency and 0.15% % for cryptocurrencies.”