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Debunked: Top European Central Bank Official’s False Arguments Against Bitcoin

Last Updated March 4, 2021 3:10 PM
Joseph Young
Last Updated March 4, 2021 3:10 PM

Benoît Cœuré, a member of the Executive Board of the European Central Bank, condemned Bitcoin (BTC), describing it a bubble, ponzi scheme, and an environmental disaster.

“Lightning may strike me for saying this in the Tower of Basel — but bitcoin was an extremely clever idea. Sadly, not every clever idea is a good idea. I believe that Agustín Carstens summed its manifold problems up well when he said that bitcoin is ‘a combination of a bubble, a Ponzi scheme and an environmental disaster,’” Cœuré said , at the Economics of Payments IX Conference

Argument 1: Bitcoin is a Bubble

Since 2009, BTC has experienced four major corrections, recording a drop in the range of 70 to 80 percent.

The definition of a bubble in finance is established as an economic cycle “characterized by the rapid escalation of asset prices followed by a contraction,” which occurs when investors are simply not willing to buy the asset at an elevated price and triggers a sell-off.

Bitcoin suffered four massive drops in its price throughout its nine-year history. But, subsequent to every 70 to 80 percent decline in value, the price of BTC recovered to a higher point. Hence, while BTC was considered a bubble at $100 and investors were not willing to purchase the asset at that valuation, the market recovered beyond that point as time passed, achieving $10,000, $10,000, and $20,000.

There were bubbles in Bitcoin and there will continue to be bubble-like behavior in the crypto market in the months to come. But, characterizing Bitcoin, a decentralized finance network that is widely utilized as a consensus currency and a store of value, as a bubble is incorrect.

Every market goes through a bubble but as it pops, the market endures a correction and revives. As security expert and cryptocurrency researcher Andreas Antonopoulos said, the bigger financial bubbles are in traditional markets like stocks and bonds.

“Bitcoin grows by bubbles. Bitcoin’s bubble is also the least dangerous, least systemic, and yet most talked about bubble. The bigger and scarier bubbles are in stocks, bonds, national debt, real estate, student loans, healthcare, etc. All of these bubbles are driven by anemic productivity growth in the context of massive stimulus and negative interest rates; money is cheap and there are no good investments that are not already inflated into bubbles,” Antonopoulos said. 

This week, the Federal Reserve Bank of New York reported  that outstanding student loan debt in the U.S. increased by $37 billion in the third quarter and stood at $1.44 trillion as of September 30, 2018.

Argument 2: Bitcoin is a Ponzi Scheme

The weakest argument against Bitcoin is falsely describing it as a ponzi scheme. A ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors by using funds obtained from new investors.

Bitcoin is a decentralized protocol and no central entity or individual has control over the network. It is technically not possible for anyone or any organization within the network to provide early investors with any additional compensation by taking away funds from new investors, because no individual or organization has the power or authority to remove funds from wallets. Bitcoin is a consensus currency, as former Goldman Sachs CEO Lloyd Blankfein said.

Argument 3: Bitcoin is Killing the Environment

Bitcoin’s impact on the global environment fails to consider many variables such as the growing amount of clean energy, increasing efficiency of cryptocurrency mining, and changes in the ecosystem.

As Andreas Antonopoulos put it: 

“Extrapolation for dummies: ‘I am concerned about the progression of your pregnancy madam. If your belly is this big at 8 months, in 2 years you will be as big as this room.’”

All three arguments outlined by Benoît Cœuré against Bitcoin have already been addressed many times in the past and are weak to justify an opposing stance towards cryptocurrencies as consensus currencies.

Feartured image from Shutterstock.