The European Central Bank warned on Wednesday that financial regulators and financial institutions should not give Bitcoin their stamp of approval since the digital currency is more closely related to gambling than to real money.
Bitcoin and other cryptocurrencies have been promoted in numerous ways, including as a stable form of alternate currency and protection against the inflationary policies undertaken by major central banks like the ECB in recent years.
A 75% decline over the past year, coinciding with the emergence of inflation, and a series of scandals, notably the collapse of the FTX exchange this month, have given opponents among central bankers and regulators ammo to fight back.
Bitcoin's value reached an all-time high of about $69k (approximately Rs. 56,00,000) in November 2021, before crashing to its current level of around $17k (Rs. 13,81,000) in the middle of June 2022.
The European Central Bank (ECB) has written a blog post in which it describes bitcoin's recent stabilization as "an artificially produced last gasp before the path to irrelevance."
Big bitcoin investors have the biggest incentives to keep the frenzy alive, according to writers Ulrich Bindseil and Juergen Schaaf. "By the year 2020's end, a small number of firms had begun publicly advocating for bitcoin on their own. It's also worth noting that there are still VCs that are putting in significant funds."
It was reported that as of mid-July, the crypto and blockchain business had received $17.9 billion (about Rs. 1.5 lakh crore) in venture capital funding; however, no proof of price manipulation was offered.
Rules are being drafted by regulators throughout the world for the crypto world, a diverse ecosystem that includes anything from stablecoins that are intended to be backed by fiat currencies to various forms of financing that occur on the blockchain, or distributed ledger, that underpins those coins.
Regulation could be "misunderstood for approval," according to an ECB blog.
Since Bitcoin "appears to be neither suitable as a payment system nor as a form of investment," Bindseil and Schaaf argue that it should be regulated as neither.
Bindseil wrote in an email to Reuters that regulators should classify cryptocurrency transactions as wagers or games of chance.
The authors continued by saying that "small investors that investments in bitcoin are sound" because of the support of asset managers, payment service providers, insurers, and banks for cryptocurrency.
Despite potential short-term gains, "the financial industry should be aware of the long-term consequences of promoting bitcoin investments," the blog's authors warn.
Since it is the primary regulator of eurozone banks and has a voice in EU financial policy, the ECB's views carry weight.
On Monday, ECB President Christine Lagarde warned that the EU's Market in Crypto-assets Regulation (MiCA), which is now being authorized, will likely need to be widened out in a future iteration, which she dubbed "MiCA 2."
Because bitcoin lacks a legal body in the EU, only exchange platforms are subject to MiCA's regulations, making it likely that this was a reference to it.
