ECB expert criticizes Bitcoin: Prosperity for early investors, poverty for latecomers

The European Central Bank's (ECB) Director General of Market Infrastructure and Payments, Ulrich Bindseil, and Senior Management Consultant, Jürgen Schaaf, have jointly released a paper on Bitcoin. The paper states that Bitcoin has not become a global payment method but rather an investment asset. Bitcoin, which cannot create productivity, will result in a zero-sum game of wealth redistribution due to its price appreciation.

Bitcoin Fails to Become Global Payment Instrument

The author, who has worked in the market infrastructure and payments division at the ECB for many years, argues that Bitcoin has failed to become a global payment instrument, contrary to the original design philosophy of Satoshi Nakamoto. In reality, more people view it as an investment asset, and Bitcoin has not achieved significant success in the payment arena. However, unlike real estate, bonds, and stocks that generate cash flows, Bitcoin's primary value mostly comes from speculation rather than its economic function, leading to wealth redistribution.

Bitcoin Lacks Productivity, Zero-Sum Game Leads to Wealth Redistribution

The paper uses multiple illustrations to depict the productivity and asset price situations of Bitcoin, where green boxes represent productivity, and red boxes represent asset prices. Typically, productive technologies or assets may be presented in the manner of Figure 2 above. However, Bitcoin, identified by the author as an investment unrelated to any use case, is seen as wealth increase without enhancing productivity. As the price of Bitcoin continues to rise, wealth accumulation gradually increases over the years as shown in Figure 4 in the middle of the chart, with the initial years possibly similar to the preceding year.

However, the volatile price fluctuations of Bitcoin may have negative societal impacts. If prices continue to rise, early adopters will see substantial asset appreciation, while non-holders and latecomers may suffer significant losses. Early adopters may sell their Bitcoin to later adopters, resembling a zero-sum game where the gains of early adopters come at the expense of late adopters or non-holders.

In a worse scenario, if Bitcoin turns into a bubble, it could lead to significant losses for latecomers, even resulting in poverty, as depicted in Figure 5 at the bottom.

"Era of 'Jealousy Tax' Upon Us?"

This paper has sparked intense criticism from cryptocurrency investors. Tuur Demeester referred to it as the most radical paper released by regulators to date, suggesting that these central bank economists perceive Bitcoin as a survival threat and jokingly mentioned the era of a "jealousy tax," where people must endure scenarios of poverty, confiscation, and countries friendly to Bitcoin gaining more power.

Crypto venture capitalist Marc van der Chijs also stated that Europe seems to be preparing for a war against Bitcoin holders, including proposals for higher taxes on Bitcoin in Italy and exit taxes in the Netherlands. While these papers originate from the ECB, they sound more like the People's Bank of China under communism.