The ECB's Absurd Bitcoin Critique
The ECB's Bindseil and Schaaf Conclude That Bitcoin Is Not A Suitable Investment
IN TODAY’S REPORT
What we cover: NONCE SENSE Edition. ECB Blog critiques Bitcoin. Falling Euro. Rising EU Debt. No Free Lunch. Inflation the reverse time machine. Bitcoin speaks for itself.
Bitcoin & The Ironic ECB
Despite the fact that the Euro’s value has continued to fall precipitously since the Great Financial Crisis of 2008 — even falling below parity with the U.S. Dollar as recently as late 2022 — the European Central Bank’s (ECB) blog just proclaimed the following on Thursday:
“Bitcoin is still not suitable as an investment. It does not generate any cash flow (unlike real estate) or dividends (stocks), cannot be used productively (commodities), and offers no social benefit (gold jewellery) or subjective appreciation based on outstanding abilities (works of art). Less financially knowledgeable retail investors are attracted by the fear of missing out, leading them to potentially lose their money.” THE ECB BLOG | 22 February 2024
Later in the article, authors Ulrich Bindseil and Jürgen Schaaf warn of the “…social damage that will occur when the house of cards collapses”, equating Bitcoin to nothing more than a precarious house of cards with no intrinsic value, driven largely by FOMO.
In light of the uptrend in E.U. debt for most member nations since the birth of the Euro currency in 1999, the decline in the Euro’s value in recent years, and the phenomenal ascent of Bitcoin since its inception during the Great Financial Crisis, these ECB statements are truly rich with irony.
EURO (EUROUSD). Monthly Chart With Heikin Ashi Candles. 2006 - Present.
European Debt To GDP Ratios.
But these fiat currency advocates are not alone in missing the true nature of Bitcoin and its immutable intrinsic value. In fact, most still view the amount of energy required to verify Bitcoin transactions (i.e., mining) as nothing more than a wasteful process expended on an unneeded, frivolous, and even malevolent asset.
Which of course brings me back to 9th grade. It’s the first day of class, and before uttering a single syllable of greeting, the freshman Biology teacher manically scrawls
T H E R E - I S - N O - F R E E - L U N C H
in giant letters across three connected chalkboards. While I’ve probably forgotten 99% of my biology education all those years ago, I will never forget that moment, even if I did not fully grasp the implications at the time.
In biology — in life — everything requires energy expenditure. Everything.
The fiat money we receive as compensation for the energy expenditure of our labor is a representation of our time. Our spent time, to be clear. We spend the time, we output the work product or service, and we receive money in return. The money is therefore a store of value, a phrase which most have heard many times but rarely stop to consider. Through work, in our current monetary regime of fiat currencies, we transmute our truly precious time into a (supposed) store of value such as the Euro or U.S. Dollar. So far, this seems like a fair trade and highly useful.
But just like another form of stored energy — batteries — can corrode and leak, so can our fiat money. In fact, our fiat currencies continue to corrode and leak. As the ocean of debt and profligate government spending steadily erodes the foundation of our stored life-energy, we are robbed of some portion of whatever wealth we may possess. Inflation is effectively a reverse time machine in which outside forces go back in time and devalue our lives. This can take many forms, none more familiar than seeing your U.S. Dollars or Euros sit in a bank earning little to no yield as interest rates climb, delivering you a negative real rate of return. In other words, as time passes your money leaks value. As you work in the present and march into the future, your past gets partially erased. Inflation is theft, and you and I are steadily being robbed.
Now let’s get back to the energy required to verify Bitcoin transactions. The energy required to maintain Bitcoin is not wasted whatsoever, but rather transmuted into a digital store of value which cannot be diluted by any external force. In fact, any external force seeking to overtake the Bitcoin network would be required to rewrite the entire blockchain through an inconceivably massive energy expenditure — an impossibly expensive and absurdly futile act were it even possible. Bitcoin is the first p2p distributed digital money which actually holds its value over time, even as it fluctuates wildly in price from day to day.
Rather than being a purely greed-driven asset driven by fools and their FOMO, a reasonable individual can easily conclude that fiat money (Euros, Dollars etc.) — which can literally be created through the minimal energy expenditure of a few keystrokes — may offer less value than an asset such as Bitcoin which is incorruptible energy in digital form.
As to Bindseil and Schaaf’s other points, let’s be clear:
Bitcoin does not need to generate any cash flow. Its prime Objective Function is to remain scarce and beyond the power of those who would dilute it to their own ends.
Bitcoin does offer a social benefit by providing anyone banked or unbanked access to a highly divisible store of value in an era of massive debt and steady fiat devaluation
Like all liquid financial assets, Bitcoin is driven by human nature and the dynamics of supply and demand, including at times the FOMO mentioned by Bindseil and Schaaf. Simply put, FOMO is not unique to Bitcoin nor is it the main driver of Bitcoin’s behavior.
At the end of the day, as seen on its monthly chart since inception, Bitcoin is a valuable mirror to the insanity of the devaluing fiat world and speaks for itself.
BITCOIN (BTCUSD). Monthly Chart With Heikin Ashi Candles. Inception - Present.
peace_love_crypto-DB
IMPORTANT DISCLAIMER
The information presented and made available in this newsletter is intended for educational purposes only. THE INFORMATION IS NOT AND SHOULD NOT BE CONFUSED WITH INVESTMENT ADVICE AND DOES NOT ATTEMPT OR CLAIM TO BE A COMPLETE DESCRIPTION OF ANY SPECIFIC COINS, TOKENS OR MARKETS OF ANY KIND, BUT RATHER EDUCATIONAL EXAMPLES OF THE APPLICATION OF TECHNICAL ANALYSIS AND QUANTITATIVE ANALYSIS TO THE MARKET. This information has been presented and prepared without regard to any particular person's investment objectives, financial situation and particular needs because as individuals come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek advice from your investment advisor or other financial professional as appropriate before taking any action. The opinions and analyses included herein are based on sources and data believed to be reliable and are presented in good faith, however no representation or warranty, expressed or implied is made as to their completeness or accuracy. It is imperative to understand your investment risks since all stock investments involve significant risk. The user of REKTelligence’s newsletters, podcasts, courses, coaching and other educational services agrees to indemnify and hold harmless REKTelligence LLC from and against any and all liabilities, expenses (including attorney's fees), and damages arising out of claims resulting from the use of this educational content. REKTelligence LLC is not a licensed investment advisor.
© 2024 REKTelligence LLC