Officials at the central bank in Frankfurt, which has been consistently hostile to private digital currencies for years, said on Wednesday that bitcoin and other digital assets are facing their “last battle,” as it becomes increasingly clear that they have failed to develop a use case and deal with negative environmental impacts.
In a blog post, two senior officials, Ulrich Bindsel and Jürgen Schaff, said that even before the catastrophic collapse of cryptocurrency platform FTX — which dragged lending platform Blockfi into bankruptcy and crippled rival Genesys — Bitcoin was “on the verge of a crash,” given its inability to Maintaining the flow of fresh funds upon which all speculative instruments depend.
They noted that this failure only highlighted its lack of a basic use case, as it is neither a store of value (because of its volatility and inability to generate returns) nor a medium of exchange, like fiat currency.
They also argued that “the market valuation of bitcoin is based solely on speculation,” adding that “speculative bubbles depend on the influx of new money.”
New funds have already become scarce since the collapse of the Terra/Luna network earlier this year, setting off a chain of events that led to a much larger bankruptcy of FTX last month. Both cases exposed widespread failures in risk management and other basic principles of corporate governance.
Bendisel and Schaff point out that the venture capital sector, while the biggest loser in the FTX debacle, still has a strong incentive to support cryptocurrency sentiment, having invested just under $18 billion in the cryptocurrency space. They pointed out that a large part of this money is diverted to put pressure on US regulators.
“In the US alone, the number of digital lobbyists has nearly tripled from 115 in 2018 to 320 in 2021,” said ECB officials. “Their names are sometimes as important as US regulators.”
They added that this pressure has contributed to slower progress in regulating cryptocurrencies in the US more than anywhere else, despite the fact that the Financial Stability Board, which coordinates the activities of G20 financial regulators, called in July for cryptocurrency assets and markets to be Subject to effective regulation and supervision.
Pinkman Fried, in particular, has come under fire for his massive donations to the Democratic Party, giving $40 million to the party’s candidates ahead of the 2022 midterm elections. However, on Wednesday he said he had given a similar amount to Republican candidates without announcing it, hoping Avoid the wrath of liberal-minded reporters.