A paper released by the European Central Bank (ECB) has drawn sharp criticism from a group of crypto academics who argue that it suffers from “methodological weaknesses and institutional biases.” This backlash comes from members of the Satoshi Action Fund, an organization advocating for Bitcoin and decentralized finance.
ECB Classifies Bitcoin as a Volatile Asset
Ulrich Bindseil and Jürgen Schaaf, the authors of the ECB’s research, describe Bitcoin as a volatile asset that contributes nothing constructive to the economy and maintains wealth concentration.
Murray Rudd, an academic, argues that the report does not offer a reliable assessment of the usefulness or sustainability of Bitcoin in the future. He contends that the ECB’s narrative unfairly disparages Bitcoin while promoting Central Bank Digital Currencies (CBDCs) as a better option.
Rudd highlights that a crucial detail is missed in the ECB’s depiction of wealth concentration: many sizable Bitcoin wallets are owned by exchanges that manage the money of millions of customers.
He points out that the ECB’s criticism of Bitcoin’s wealth distribution is undermined by this misinterpretation, which ignores the wider effects of inflation inside conventional financial systems.
Furthermore, Rudd contends that the writers misunderstand the fundamental function of Bitcoin, falsely asserting that it has changed from a means of exchange to a speculative investment.
He claims that this kind of thinking ignores the substantial improvements in Bitcoin’s efficiency and scalability.
“By focussing on the early limitations, Bindseil and Schaaf fail to acknowledge the substantial progress made in improving its scalability and efficiency,” said Rudd.
Advocates Slams ECB’s Understanding of Bitcoin
The ECB’s claims that Bitcoin has no inherent value are also criticised. Rudd notes that the study ignores the network effects that increase Bitcoin’s value as well as its usefulness as a store of value.
He goes on to say that rather than being a fundamental defect, the volatility associated with Bitcoin is a typical feature of early-stage technological adoption.
Furthermore, the ECB has overlooked a number of significant advantages of Bitcoin, including its capacity to promote financial inclusion, ease cross-border payments, and be useful in areas with unstable economies. The scholars contend that Bitcoin’s contributions to power grid stability are not taken into consideration in the ECB’s report.
The rebuttal to the ECB’s assertions was co-authored by Allen Farrington of Axiom Capital, Freddie New from Bitcoin Policy UK, and Dennis Porter from the Satoshi Action Fund, calling for a more balanced and credible evaluation of Bitcoin’s role in the financial landscape.