Bitcoin is on the 'road to irrelevance' and its last gasp was already on the horizon before FTX's collapse, ECB officials say

• Bitcoin was heading for a dead-end even before the collapse of Sam Bankman-Fried's FTX, ECB officials wrote Wednesday.
• Bitcoin's technological shortcomings make it a questionable means of payment, they wrote, and transactions are slow.

Bitcoin is headed for a dead-end, which was already on the horizon even before the collapse of Sam Bankman-Fried's FTX crypto exchange, according to European Central Bank officials.

In a Wednesday blog post titled "Bitcoin's last stand," they noted that the price of bitcoin has hovered around $20,000 recently after plunging earlier this year to $17,000 from a year-ago high of $69,000.

"For bitcoin proponents, the seeming stabilization signals a breather on the way to new heights," wrote Ulrich Bindseil and Jürgen Schaff, who both serve in the ECB's market infrastructure and payments division. "More likely, however, it is an artificially induced last gasp before the road to irrelevance – and this was already foreseeable before FTX went bust and sent the bitcoin price to well below $16,000."

They added that using bitcoin for transactions is cumbersome, and while the underlying tech has high upside potential, the cryptocurrency isn't used to any significant degree for legal real-world purposes.

Additionally, it's not suitable as an investment, the blog said, noting it doesn't generate cash flow or dividends, can't be used productively like commodities, and has no social benefits like gold.

Instead, bitcoin's value is based purely on speculation, largely moving on hype from big investors and lobbyists, they said.

"Big Bitcoin investors have the strongest incentives to keep the euphoria going," the authors wrote. "At the end of 2020, isolated companies began to promote Bitcoin at corporate expense. Some venture capital (VC) firms are also still investing heavily. Despite the ongoing 'crypto winter', VC investments in the crypto and blockchain industry totalled $17.9 billion as of mid-July."

The officials also said the world's largest crypto by market cap poses a risk to the reputations of banks. There remains long-term dangers of promoting the token, despite the potential for short-term profits.

And while the crypto industry faces growing calls for oversight, the ECB officials cautioned that regulation can be misunderstood as approval.

"Since Bitcoin appears to be neither suitable as a payment system nor as a form of investment, it should be treated as neither in regulatory terms and thus should not be legitimized," the ECB report said.