In reaction to the recent anti-Bitcoin report released by the European Central Bank (ECB), an academic paper entitled “Challenging Bias in the ECB’s Bitcoin Analysis” has emerged. Crafted by Murray A. Rudd, along with co-authors Allen Farrington, Freddie New, and Dennis Porter, the document delivers a thorough critique of a recent working paper authored by ECB officials Ulrich Bindseil and Jürgen Schaaf.
Dennis Porter, CEO and founder of Satoshi Action Fund, who was instrumental in the paper’s creation, announced its publication on X, stating, “₿REAKING: Full Academic Rebuttal to the anti-Bitcoin ECB paper officially published.”
The original ECB paper by Bindseil and Schaaf characterizes Bitcoin as a speculative asset with minimal intrinsic value and considerable risks. It critiques Bitcoin’s volatility, its lack of productive contribution, and issues of wealth concentration, while promoting Central Bank Digital Currencies (CBDCs) as a more effective solution for contemporary financial systems, as noted by Bitcoinist.
The rebuttal systematically confronts and counters the main claims made by Bindseil and Schaaf:
#1 Bitcoin’s Political Lobbying Influence
Bindseil and Schaaf contend that lobbying efforts from the industry disproportionately sway regulatory policies to its advantage. The rebuttal counters this argument by emphasizing the decentralized nature of Bitcoin, stating, “Bitcoin does not have a CEO, legal or marketing teams, or lobbyists: it is a neutral, global, leaderless protocol. Advocates for Bitcoin usually lack the institutional support that the corporations dominating the crypto industry enjoy,” as noted by the authors.
Furthermore, they highlight that traditional financial institutions invest significantly more in lobbying than the emerging crypto sector, indicating that crypto-related lobbying expenses constituted less than 1% of the total financial sector’s lobbying spending in the US in 2023.
#2 Wealth Concentration
In response to the assertion regarding wealth being concentrated in a small number of large holders, the rebuttal points out that this perspective overlooks the broad distribution of Bitcoin ownership. “Institutional and exchange wallets represent holdings from a variety of investors instead of being owned by single entities,” the authors clarify. They also mention that many of the largest wallets are linked to exchanges such as Coinbase and Binance, as well as to ETF providers like BlackRock and Fidelity, who manage Bitcoin on behalf of millions of users.
The authors further question the idea that concentration of wealth in Bitcoin is automatically unjust. “They imply that any form of inequality is wrong, yet do not justify why this should be the case— a free market for Bitcoin has existed for anyone to participate since its launch,” they state. “Unlike most other cryptocurrency tokens (‘altcoins’), Bitcoin had a fair and transparent launch. There were no pre-launch distributions, no ‘founder shares,’ and no venture capitalists acquiring Bitcoin at discounted prices.”
#3 Lack Of Productive Contribution
The ECB document claims that Bitcoin’s rising price generates positive consumption effects for its holders but does not contribute to increased productivity or economic growth overall. The rebuttal challenges this notion, arguing that Bitcoin significantly fosters financial innovation and efficiency. “Bitcoin operates as a technological protocol— comparable to the TCP/IP protocol that supports the Internet— facilitating the creation of new financial services,” they argue.
The authors also underscore Bitcoin’s positive effects in developing regions, particularly in remittance markets. “For countries heavily reliant on remittances, lowering transaction costs can have profound impacts on low-income households, who typically lack access to traditional banking services,” the paper observes.
#4 Bitcoin Wealth Redistribution
Bindseil and Schaaf suggest that the appreciation of Bitcoin’s price facilitates wealth redistribution that favors early adopters at the cost of latecomers and non-holders. The rebuttal challenges this point, emphasizing that participants in the BTC markets act voluntarily, entering based on their assessment of the asset’s future potential.
“Similar to early stock or venture capital investors, Bitcoin’s early adopters faced significant risks in exchange for potentially high rewards— a natural feature of markets for emerging technologies,” they clarify. They also point out the more extensive implications of inflation, which tends to shift wealth from savers to debt holders through inflationary measures. “Bitcoin’s capped supply and deflationary nature counteract this wealth erosion, providing a long-term value preservation option,” they assert.
#5 Lack Of Intrinsic Value
The ECB paper argues that Bitcoin does not possess intrinsic value and cannot be assessed using conventional asset valuation frameworks. The rebuttal maintains that this limited viewpoint disregards the significance of scarcity, decentralization, and Bitcoin’s utility as a store of value.
“Bitcoin operates much like gold, serving as an alternative store of value, especially during monetary instability,” they argue. They further assert, “This argument is flawed: they claim BTC cannot be considered money because it doesn’t conform to security valuation models, while in fact, it cannot be valued in that way precisely because it functions as money.”
#6 Bitcoin Is A Speculative Bubble
The rebuttal addresses the claim that Bitcoin’s price fluctuations indicate speculative bubbles, pointing out that volatility is a common attribute of emerging technologies. “The price increases of Bitcoin are driven by its scarcity, levels of adoption, network effects, and recognition of its practical use as a hedge against the depreciation of fiat currencies,” they explain.
#7 Failure As A Payment System
According to the ECB paper, Bitcoin has failed to realize its promised potential as a global payment system due to high transaction fees and scalability challenges. The rebuttal responds by pointing out the technological improvements, such as the Lightning Network, which have vastly enhanced Bitcoin’s scalability by reducing fees and accelerating transaction speeds.
“By concentrating on early shortcomings, Bindseil and Schaaf overlook the considerable advancements made in scaling and enhancing its efficiency,” they contend. They also challenge the authors’ critique of Nakamoto’s analysis of financial transactions, stating, “Nakamoto’s premise is not about mediation optionality in certain transactions; it pertains to the inherent costs and risks associated with relying on third-party credit institutions for transactions.”
The authors also question the ECB paper’s portrayal of CBDCs as inherently superior to Bitcoin. They address the risks of centralization that accompany CBDCs, including concerns about privacy, political interference, and surveillance. “Bitcoin’s decentralized design guarantees censorship resistance and financial independence,” they argue, contrasting it with the inherent centralization in CBDCs.
The rebuttal raises potential conflicts of interest given the authors’ positions within the ECB, considering that both Bindseil and Schaaf are heavily involved in the development of the digital euro, a CBDC project that is in direct competition with decentralized currencies like Bitcoin. “Their vested interest in promoting CBDCs likely skews their characterization of Bitcoin as a speculative asset,” conclude Porter and his colleagues.
As of the latest update, BTC is trading at $66,465.
Featured image created with DALL.E, chart from TradingView.com
