ECB Economists Slam Bitcoin ETFs: 'Emperor’s New Clothes’

A pair of European Central Bank economists warned, in almost apocalyptic terms, that the spot bitcoin ETF approval in the U.S. earlier this year will have negative consequences for society, and haven't validated cryptocurrency as a good investment strategy.

"The fair value of Bitcoin is still zero," economists Ulrich Bindseil and Jürgen Schaaf wrote in a blog post this week. "For society, a renewed boom-bust cycle of Bitcoin is a dire perspective."

Bindseil, director general of market infrastructure and payments, and Schaff, advisor to market infrastructure and payments, warned the damage from the bitcoin price boom "will be massive" and has called the Securities and Exchange Commission’s (SEC) approval of spot bitcoin ETFs “the naked emperor’s new clothes”.

The ECB disputed claims that the SEC’s approval of spot bitcoin ETFs earlier this year means it is a safe investment as well as disagreeing about the crypto’s inherent value.

Bitcoin and Bitcoin ETF Rallies

Bitcoin’s rally throughout 2023 and into 2024 was buoyed by first a slowing down and then a pausing of the Federal Reserve’s interest rate hikes, generating an increased risk appetite among investors.

This is continuing along a similar trajectory in 2024, with the Fed expected to cut interest rates three times this year as US inflation continues to drop from 40-year highs.

Bitcoin’s price skyrocketed 164% to $42,500 last year and has risen 18% so far in 2024.

The writers also implied the false sense of security provided by the SEC’s approval might be mirrored in Europe through the Markets in Crypto Assets Regulation (MiCA).

The regulator aimed to curb fraudulent issuers and traders of crypto units last June, “despite the initial intentions towards genuine crypto assets, an eventual focus on stablecoins and service providers, although without regulating and constraining bitcoin per se”.

The ECB’s stance comes after inflows into crypto ETPs doubled year-on-year to $2.3bn in 2023, up from $830m in 2022, according to CoinShares data.