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Bitcoin’s price rally driven by manipulation, criminal acts, and inadequate regulation: ECB officials

While the bank maintains its decade-long criticism of Bitcoin, others actively explore its potential.

Bitcoin price rally driven by manipulation, criminal acts and inadequate regulation

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Bitcoin’s current price rally is unlikely to be driven by fundamental factors. Instead, it’s attributed to temporary and potentially unsustainable influences, including price manipulation, demand for illegal activities, and misguided regulations, said the European Central Bank (ECB) in a report published this week. 

“While the current rally is fueled by temporary factors, there are three structural reasons that may explain its seeming resilience: the ongoing manipulation of the “price” in an unregulated market without oversight and without fair value, the growing demand for the “currency of crime”, and shortcomings in the authorities’ judgments and measures,” the ECB wrote.

The ECB views the recent price rally following the spot Bitcoin exchange-traded fund (ETF) approval as a sign of a potential renewed bubble, similar to previous boom-bust cycles experienced with Bitcoin. They believe this is likely unsustainable and could lead to significant financial losses for investors.

“For society, a renewed boom-bust cycle of Bitcoin is a dire perspective. And the collateral damage will be massive, including environmental damage and the ultimate redistribution of wealth at the expense of the less sophisticated,” the ECB stated.

The ECB argues that Bitcoin’s price movements might not accurately reflect its underlying value due to its lack of intrinsic value, history of fraudulent activity, and potential trading practices and liquidity issues. According to the bank, these factors make Bitcoin more vulnerable to manipulation.

“The history of Bitcoin has been characterized by price manipulation,” noted the ECB. “Manipulation may have become more effective as the trading volumes diminished significantly during the recent marked downturn called” crypto winter” as market interference has more of an impact when liquidity is low.”

The ECB portrays Bitcoin as a top facilitator of criminal activities, including money laundering, ransomware attacks, and potentially terrorism. Even with compliance measures in place, mainstream exchanges still facilitate the conversion of illicit crypto into cash, as highlighted by the bank.

Regarding Bitcoin’s regulatory approach, it appears that the recent headway that Bitcoin has made with US regulators makes little sense to the ECB. According to the bank, existing regulations, like the EU’s MiCA and the US SEC’s approach to ETFs, have been ineffective in addressing key concerns like fraudulent activities, price manipulation, and environmental impact.

The ECB added that the lack of inadequate regulations directly targets Bitcoin and the potential for misunderstanding among the public about the level of safety these regulations provide. The bank called for stronger intervention, potentially including stricter regulations or even prohibition, to address the perceived risks associated with Bitcoin.

Remarkable changes have occurred in the banking sector’s approach to Bitcoin during the last decade. Several financial institutions have turned their backs on crypto after attempting to kill it initially. However, not every bank has proceeded with the same readiness to adopt these changes.

The European Central Bank has consistently voiced its skepticism towards Bitcoin. In 2014, ECB executive board member Isabel Schnabel stated that the central bank is unlikely to acquire Bitcoin for its balance sheet.

In 2022, ECB officials Ulrich Bindseil and Jürgen Schaff criticized Bitcoin, stating that it is on the “road to irrelevance” due to its inefficiency, lack of real-world utility, and speculative nature.

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