The European Central Bank alleges that early Bitcoin investors exploit new buyers of Bitcoin

The authors recommend that Bitcoin be either prohibited entirely or subjected to rigorous price regulations.

The European Central Bank (ECB) has recently published a paper asserting that early Bitcoin investors are benefiting at the expense of newer entrants to the market.

The paper contends that the decentralized and restricted supply structure of Bitcoin has resulted in a situation in which those who acquired the cryptocurrency at a lower price or earlier are reselling it at a profit, thereby exploiting new purchasers.

The authors propose that Bitcoin should be either prohibited entirely or subjected to stringent price restrictions in order to prevent what they refer to as a “unfair” wealth transfer.

The paper posits that the wealth distribution resulting from Bitcoin could result in social unrest. Additionally, the ECB report expresses apprehension regarding Bitcoin’s involvement in illicit activities, citing prior research that implicates it in unlawful transactions.

Nevertheless, this perspective is challenged by a May 2024 report from the U.S. Treasury Department, which emphasizes that fiat currency continues to be the most prevalent method for illicit activities, rather than cryptocurrencies such as Bitcoin.

It is intriguing that the ECB paper does not investigate the reasons for the significant increase in Bitcoin’s value since its inception in 2009.

It also fails to acknowledge that Satoshi Nakamoto, the pseudonymous creator of Bitcoin, intended the asset to serve as both a decentralized payment system and a hedge against the devaluation of fiat currency.

The scarcity of Bitcoin, which is restricted to 21 million coins, has been a significant factor in its increasing value, particularly as governments worldwide have expanded the money supply.

Critics of the European Central Bank’s position contend that the paper neglects to consider the more comprehensive context of monetary inflation.

For instance, in 2023-2024, the UK’s public sector debt reached its highest level since the 1960s, at nearly 98% of GDP.

Since 2020, the M2 money supply has increased by 41%, contributing to the U.S. national debt’s surge to $35 trillion.

The paper’s contradictory assertions—that Bitcoin is destabilizing and simultaneously lacks intrinsic value—ignore the inflationary pressures that Bitcoin was intended to mitigate.

The function of Bitcoin as a store of value continues to attract both institutional and retail investors as traditional currencies lose purchasing power.

In parallel, there has been an increase in the popularity of Bitcoin and Bitcoin-related products among both institutional and retail investors.

Charles Schwab, a financial services behemoth, recently commissioned a survey that revealed a growing interest among U.S. investors in exchange-traded funds (ETFs) that invest in cryptocurrencies.

Over the next year, 45% of respondents intend to invest in cryptocurrency through exchange-traded funds (ETFs), a rise from 38% the previous year, according to the survey.

The demand for bonds and alternative assets has been surpassed by the increasing interest in crypto, with only U.S. equities rating higher. This is due to the fact that 55% of participants have indicated intentions to invest in stocks.

Millennial ETF investors demonstrated an even greater level of enthusiasm for crypto, with 62% intending to allocate funds to the sector. This is in contrast to 48% for U.S. equities, 47% for bonds, and 46% for actual assets such as commodities.

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