The SEC approved Bitcoin ETFs. The European Central Bank is not happy

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Grab your popcorn, the European Central Bank’s gone studs-up on the Securities & Exchange Commission.

From the ECB blog today:

On 10 January, the US Securities and Exchange Commission (SEC) approved spot exchange-traded funds (ETFs) for Bitcoin. For disciples, the formal approval confirms that Bitcoin investments are safe and the preceding rally is proof of an unstoppable triumph. We disagree with both claims and reiterate that the fair value of Bitcoin is still zero. For society, a renewed boom-bust cycle of Bitcoin is a dire perspective. And the collateral damage will be massive, including the environmental damage and the ultimate redistribution of wealth at the expense of the less sophisticated.

Admittedly, warm reception from Frankfurt’s finest was probably never on the cards — the ECB have been avowed no-coiner scrubs for some time — but this kind of cross-border regulator-on-regulator violence is uncommon. Even if the SEC didn’t exactly seem eager to approve the ETFs until a panel of judges ruled that a prior denial from the regulator was “arbitrary and capricious”.

Authors Ulrich Bindseil — the ECB’s director-general of market infrastructure and payments — and Jürgen Schaaf write:

We argued that Bitcoin has failed to fulfil its original promise to become a global decentralised digital currency. We also showed that Bitcoin’s second promise to be a financial asset, the value of which would inevitably continue to rise, was equally wrong. We warned about the risks to society and the environment if the Bitcoin lobby managed to relaunch a bubble with the unintended help of legislators, who could give a perceived blessing where a ban would be required…

Alas, all these risks have materialised.

The ECB’s argument for why Bitcoin is rubbish are pretty familiar, and, well, compelling but not exactly bulletproof:

It does not generate any cash flow (unlike real estate) or dividends (stocks), cannot be used productively (commodities), and offers no social benefit (gold jewellery) or subjective appreciation based on outstanding abilities (works of art).

We’d love to hear what the social benefits of gold jewellery are!

Elsewhere, the ECB says, effectively, that the existence of a pure bitcoin ETF debases the intended purpose of those sacred security baskets:

An ETF with only one asset turns its actual financial logic on its head (although there are others in the United States). ETFs normally aim to diversify risk by holding many individual securities in a market. Why would anybody pay fees to an asset manager for the custody service of only one asset — instead of using the custodian directly, which is in most cases one huge crypto exchange, or even holding the coins for free without any intermediary?

They add (our emphasis):

While the current rally is fuelled 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.

That last point is probably the crucial one here”: obviously, nobody in the year of our Lord twenty twenty four really cares what the ECB says about Bitcoin. And, naturally, the SEC’s reaction might well be something like:

While people holding bitcoin might feel more like:

(Shockingly some Bitcoiners are actually quite so stoic, judging by the community note on the ECB’s tweet:

)

Regardless, it still stings. Here are some more of the zingers coming out of Sonnemannstrasse 20 (our emphases and [bracketed snark]):

The decentralised nature of Bitcoin presents challenges for authorities, sometimes leading to unnecessary regulatory fatalism. But Bitcoin transactions offer pseudonymity rather than complete anonymity, as each transaction is linked to a unique address on the public blockchain. Therefore, Bitcoin has [like the FT comments section] been a cursed tool for anonymity, facilitating illicit activities and leading to legal action against offenders by the tracing of transactions [OK maybe not the last one but we’re watching you]

The Bitcoin network has a governance structure in which roles are assigned to identified individuals. Authorities could decide that these should be prosecuted in view of the large scale of illegal payments using Bitcoin. Decentralised finance can be regulated as forcefully as the legislator considers necessary.

Bitcoin’s price level is not an indicator of its sustainability. There are no economic fundamental data, there is no fair value from which serious forecasts can be derived. There is no “proof of price” in a speculative bubble. Instead, a reflation of the speculative bubble shows the effectiveness of the Bitcoin lobby. The “market” capitalisation quantifies the overall social damage that will occur when the house of cards collapses. It is important for authorities to be vigilant and protect society from money laundering, cyber and other crimes, financial losses for the financially less educated, and extensive environmental damage. This job has not been done yet.

Oof.

Anyway, the timing may prove prescient:

God bless America.