European Central Bank claims Bitcoin is on its last legs, but cryptobros aren’t convinced

By Malavika Pradeep

Published Dec 19, 2022 at 03:28 PM

Reading time: 4 minutes

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Image by Tim Gouw from Pexels

When cryptocurrency company FTX was founded in 2019, it quickly shot to international prominence through a series of high-profile acquisitions, celebrity endorsements, and low trading fees. Come 11 November 2022 however, the once-third largest cryptocurrency exchange in the world filed for Chapter 11 bankruptcy. On 12 December, Bahamian authorities then arrested wunderkind and former CEO Sam Bankman-Fried, who is now set to be extradited to the US—where he faces eight criminal charges including wire fraud and conspiracy to defraud investors.

Once valued at $32 billion, the downfall of FTX proved catastrophic for the crypto industry as it dropped the volatile market below $1 trillion in early November. Both investors and customers alike lost billions, and the company’s fall from grace is predicted to affect crypto well into the future—with the potential of even dragging down broader markets.

It’s at such a time that the European Central Bank has claimed Bitcoin is “on the road to irrelevance.” And it’s also at such a time that cryptobros are choosing to do anything but believe the institution.

As one of the world’s largest cryptocurrency exchanges, FTX essentially provided a platform where people could buy and sell digital assets like Bitcoin, Dogecoin, and Ethereum for other digital currencies or traditional money, and vice versa. As noted by NBC News, such platforms rose in popularity over the recent years as more people looked to invest in cryptocurrencies without the hassle of dealing with the technical side of such transactions, like setting up a crypto wallet.

As a result, those who were unfamiliar with the technology were lured to FTX with the promise that they could park their money in accounts and earn much higher yields than at traditional banks.

Shortly after Bankman-Fried launched the company, crypto began to boom. “The price of Bitcoin, which had traded at around $10,000, shot up in 2021, peaking at more than $64,000,” NBC News reported. “Venture capital money flooded into all things blockchain and crypto, and crypto platforms moved to attract customers beyond the technologists and blockchain evangelists that once fueled its rise.”

However, the price of Bitcoin—which is generally seen as an indicator of the broader crypto market—declined drastically from its late 2021 pedestal, and other token values followed suit. While the decline forced a number of major platforms to shut down, FTX somehow seemed immune. At the time, the company was hailed as the next big thing in tech… until the balance sheet of crypto investing firm Alameda Research, which was also owned by Bankman-Fried, was made public.

The leaked report showed that Alameda Research was using FTX customer funds as a “personal piggy bank” for trades and leveraging the exchange’s native token FTT as collateral. The company’s rival platform Binance then announced that it would sell off all its FTT tokens “due to recent revelations”—in turn, setting the stage for FTX’s collapse days later.

As FTT plummeted, many FTX customers moved to withdraw their assets from the platform. Since 8 November, the price of the token has dropped by more than 90 per cent. Meanwhile, the price of Bitcoin and Ethereum plummeted about 19 and 24 per cent respectively. In a matter of days, FTX went down like a house of cards, leaving users unable to withdraw funds and triggering a broader crash of the crypto market that made countless people around the world lose their money.

Following the collapse of FTX, on Wednesday 30 November 2022, Bitcoin surprisingly topped $17,000—marking a two-week high for the world’s largest digital currency. But according to the European Central Bank (ECB), Bitcoin’s recent price stabilisation is likely an “artificially induced last gasp before the road to irrelevance.”

In a blog post titled Bitcoin’s last stand, the ECB noted that the currency’s peak value of nearly $70,000 occurred only a year ago in November 2021, yet by June 2022 it had fallen dramatically to less than a third of that. “For Bitcoin proponents, the seeming stabilisation signals a breather on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance—and this was already foreseeable before FTX went bust and sent the Bitcoin price to well below $16,000,” the report read.

Heck, even Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, himself warned that the bounce is likely just a short-term rebound and would not be sustained. “This is just a bearish retest,” he told CNBC.

“Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment: real Bitcoin transactions are cumbersome, slow and expensive,” the ECB continued, adding that the currency has never been used to any significant extent for legal, real-world transactions. “Since Bitcoin appears to be neither suitable as a payment system nor as a form of investment, it should be treated as neither in regulatory terms and thus should not be legitimised.”

For cryptobros however, all of these claims translate to “another day, another Bitcoin doomsayer.” When news of the ECB’s statements first made its way onto Reddit, enthusiasts commented that this is exactly what “a centralised bank would want us to believe.”

“Banks [be] hating on Bitcoin since 2009,” a user wrote, while another added: “They hated it before it was cool to hate it.” While some users highlighted that China has been making such claims since 2016, others mentioned that centralised banks want them to believe that crypto is going nowhere. “However crypto is thriving and they see crypto as a threat to the traditional banking system,” one noted.

Elsewhere, the ECB’s claims reignited conversations about the amount of energy required to process Bitcoin transactions. “Crypto requires both a high amount of power to produce and a highly accessible network for liquidity and fungibility, especially given the volatility of the coins’ values,” one Redditor noted. “The speed of crypto is its own downfall—it tries to disrupt the active usage of centralised currency while being built and supported by the same money which it seeks to eliminate.”

“Decentralised currency might be the future, but not Bitcoin,” a Redditor added on these terms. Meanwhile, a second wrote: “Crypto is the wild-west of a phenomenon that has no other value than dictated by FOMO. Each and every time the line goes down there’s basically an outcry for compensation, insurance and/or regulation. It never was relevant.”