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What The ECB Gets Wrong About Bitcoin
- A recent paper from two economists at the European Central Bank has made a number of unsubstantiated claims about bitcoin and its impact on society.
- They state that early bitcoin investors are impoverishing those who came later to the game, but this is true if the early investors don't sell and equally true of other publicly-traded assets.
- The report also claims that bitcoin has failed as a payment technology without mentioning the growth of the fast and cheap Lightning Network built on the asset.
- The ECB paper suggests criminals prefer cryptocurrency above all other assets, yet this is not true, with data showing cash is the most popular asset for committing illegal activity.
- Equally laughable is the claim that crypto funding of democratic candidates is a threat to democracy and only Bitcoin is a currency of last resort for pro-democracy activists.
- The paper's tone is also paternalistic and suggests retail investors need more protection from Bitcoin and shouldn't be allowed to make their own mind up, which is deeply concerning.
- The researchers also seem to misunderstand how markets work, seemingly suggesting that those who get involved at the top of a cycle are unsophisticated and lose money.
- Finally, the ECB paper suggests the central bank can simply raise interest rates to counteract any bitcoin bubble, something that has been proven false in the past.
- Overall, the paper shows a lack of understanding of how the crypto market works, ignoring some of its most innovative features and its ability to serve those debanked by authoritarian regimes.
- It also suggests that retail investors are preyed upon by savvy crypto investors when everyone has the same opportunity to buy and sell assets, and Bitcoin is no exception.
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