In a recent blog post by the European Central Bank (ECB), Ulrich Bindseil and Jürgen Schaaf have voiced strong skepticism about Bitcoin’s utility and value, even in the wake of the U.S. Securities and Exchange Commission’s approval of Bitcoin spot exchange-traded funds (ETFs). The post, titled “ETF approval for bitcoin – the naked emperor’s new clothes,” argues that Bitcoin has not delivered on its promises and is still not suitable as a means of payment or an investment.

The ECB officials assert that the fair value of Bitcoin is zero, and the approval of an ETF does not alter Bitcoin’s fundamental shortcomings. They contend that a renewed boom-bust cycle of Bitcoin would result in substantial collateral damage, including environmental harm and wealth redistribution from the less sophisticated to the more savvy investors.

The blog post reflects on Bitcoin’s history, noting that it has failed to become a global decentralized digital currency and has seen minimal use for legitimate transfers. The authors point out that Bitcoin’s second promise to be a continually appreciating financial asset is equally flawed. They express concern over the risks to society and the environment if Bitcoin’s bubble is re-inflated, potentially with the unintended help of legislators.

The approval of Bitcoin spot ETFs by the SEC on January 10 has been interpreted by some as a confirmation of safety and an unstoppable triumph for Bitcoin investments. However, the ECB blog post strongly challenges these claims, suggesting that for society, the consequences could be dire.

Bindseil and Schaaf also comment on Bitcoin’s ongoing environmental impact, comparing its energy consumption to that of entire countries. They call for increased due diligence from retail investors and highlight the prevalence of less financially knowledgeable individuals being attracted by the fear of missing out, leading to potential losses.

Despite the negative stance on Bitcoin, the cryptocurrency has seen a significant recovery from under $17,000 to over $52,000 since late December 2023. This rebound is attributed to several factors, including prospects of a turnaround in the U.S. Federal Reserve’s interest rate policy, the halving of BTC mining rewards, and the SEC’s ETF approval.

The ECB blog post concludes that authorities need to remain vigilant to protect society from the various risks associated with Bitcoin, including money laundering, cybercrime, financial losses for less educated investors, and environmental damage. The blog calls for the job of safeguarding against these perils to be taken more seriously.