Weekly Insights 3: ECB does not like bitcoin
The European Central Bank (ECB) has once again published a blog this week in which information is handled very selectively, and harsh criticism is directed towards bitcoin. The authors of the blog are the same as those who wrote at the end of 2022 that bitcoin was on its way to irrelevance. In this weekly insights, we will of course pay attention to this. Additionally, we will discuss the global growth of sustainable bitcoin mining, the allowance of donations to political parties in bitcoin, and we will take a look at the increase in trading volume of the VanEck bitcoin ETF.
ECB does not like bitcoin
ETF approval for bitcoin – the naked emperor’s new clothes reads the striking title of a blog on the ECB's website. Ulrich Bindseil and Jürgen Schaaf are the authors, the same as those who wrote in late 2022 that bitcoin was heading towards irrelevance.
Since then, the bitcoin price has increased by approximately 200%. Perhaps some rectification would have been appropriate, but no, just another new blog to criticize bitcoin. It's remarkable that the ECB lends its website for this purpose.
But in terms of content, the blog is full of inaccuracies. Interestingly, the community note in the ECB's post on X nicely highlights this.
For example, it is claimed that bitcoin is money for criminals. Even the US Department of the Treasury recently admitted that this is not the case, citing a study by Chainalysis, which shows that only about 0.34% of bitcoin transactions are related to criminal activities.
It is also claimed that the value of bitcoin is zero. The argument that it is not issued by a central bank is missing here, but why then zero? Because it does not generate cash flow like stocks (dividends) or real estate (rental income). Regardless of economic fundamentals, every price is equally (un)plausible. A perfect setting for snake oil salesmen, according to the authors of the blog.
Furthermore, it is claimed that bitcoin is bad for the environment, not decentralized money, a poor investment, and has been manipulated since the beginning. In other words, bitcoin solves nothing and we might as well ban it.
All of this is claimed without much tangible evidence. At least, with very selective or even outdated information. It's unfortunate that the ECB lends its website to this kind of political ideological propaganda, and it might even be a bit unprofessional. You can read more about the ECB's blog on bitcoin.nl.
The global growth of sustainable bitcoin mining
This month, the bitcoin network and bitcoin mining have achieved a new milestone: a whopping 55% of the electricity it uses comes from sustainable sources. That's an increase of 0.5% compared to last month, according to research by Daniel Batten.
What caused this increase? Batten points to three key factors: in Ethiopia, mining is mainly done using fully renewable energy; bitcoin miners in Argentina contribute to methane reduction (Unblock Global); and developments surrounding the bitcoin miner CleanSpark.
Bitcoin mining in Ethiopia? Absolutely, despite the ban on bitcoin and crypto in Ethiopia, favorable laws were passed in 2022 for 'high-performance computing' and 'data mining', which includes bitcoin mining.
As a result of these laws, Ethiopia has attracted many bitcoin miners, particularly from China, partly due to the abundance of cheap and clean energy sources in the country.
For example, Luxor Mining recently confirmed that they are using 200 megawatts of energy for bitcoin mining in Ethiopia, 95% of which comes from hydroelectric power, and 5% from solar and wind energy.
The allowance of donations to political parties in bitcoin
The Forum for Democracy (FvD) added a button to their website last November, allowing people to donate in bitcoin and crypto, making them the first party in the House of Representatives of The Netherlands (Second Chamber) to enable this.
D66 parliamentarian Joost Snellen expressed concern that this could enable other countries like Russia and China to influence elections. Therefore, he posed questions to the Second Chamber at the beginning of January.
Minister De Jonge of the Ministry of the Interior and Kingdom Relations answered these questions last week.
One of Snellen's concerns was that donations in bitcoin and crypto could pose a risk to the transparency and reliability of the overview of donations, and thereby also to compliance with the Political Parties Financing Act (Wfpp).
According to the minister, there is indeed a risk that donations in bitcoin and crypto could circumvent the maximum donation amount or the ban on foreign donations, but such donations are permitted. Good news for political parties willing to accept bitcoin and crypto.
'I consider a contribution in crypto assets as a monetary contribution, as it has an informal, if not official, equivalent value in, for example, dollars or euros and, in any case, a trading value. To the extent that crypto assets should be considered as property or service, it constitutes an in-kind contribution.'
The VanEck bitcoin ETF
Less than a week after VanEck announced that it would lower the fees of its spot bitcoin ETF from 0.25% to 0.20%, the fund ($HODL) experienced a significant increase in trading volume.
On Tuesday, VanEck's bitcoin ETF surpassed a trading volume of $300 million, more than ten times higher than its previous best day.
According to analyst Eric Balchunas, he expressed surprise at how well the fund performed on X. The trading volume was 14 times higher than the daily average, and it wasn't just large investors (which would be logical), but rather 32,000 individual transactions, which is 60 times more than the usual average, the analyst stated.
It's interesting to see that the ETF from one of the players who has been involved in bitcoin longer than, for example, BlackRock and Fidelity, is now performing well and gaining attention. Nonetheless, it might still be better to actually own bitcoin rather than investing in an ETF.
