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A recent paper published by the European Central Bank (ECB) on October 12, 2024, has stirred controversy by suggesting that early Bitcoin holders profit at the expense of newer investors.
The report claims that older holders who bought Bitcoin at lower prices are exploiting newer buyers by selling at a profit, an occurrence it argues should be regulated. The authors go so far as to propose stringent price controls on Bitcoin to prevent further price increases and even call for a ban on the cryptocurrency to stop what they view as unfair wealth distribution.
The authors argue that new investors are being taken advantage of in a way that causes civil strife, concluding that current non-holders have âcompelling reasons to oppose Bitcoinâ and should advocate for legislation against it. While their argument may seem extreme to some, it has opened up a broader debate on the role of Bitcoin in the global financial system.
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Critics Highlight Flaws in ECBâs Reasoning
Bitcoin advocates were quick to point out several contradictions in the ECBâs report. While the paper asserts that Bitcoin is rarely used as a payment method, it simultaneously references a debunked claim that Bitcoin is the preferred currency for criminal transactions.
This assertion clashes with recent data from the U.S. Treasury Department, which reported that fiat currency remains the primary choice for illicit dealings, not Bitcoin.
Additionally, critics argue that the ECB ignores the intentional design of Bitcoin as a decentralized store of value meant to hedge against inflation and the depreciation of fiat currencies. Since its inception in 2009 by the pseudonymous Satoshi Nakamoto, Bitcoin has grown into a global financial asset with a fixed supply, a key feature that explains its price growth over time.
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Monetary Inflation Overshadowed by Bitcoinâs Rise
One of the most glaring omissions in the ECB paper is the failure to acknowledge the effects of inflation on fiat currencies. For instance, the U.S. M2 money supply has ballooned by 41% since 2020 due to fiscal stimulus, contributing to rising debt and diminishing purchasing power.
Similarly, public sector debt in the U.K. reached nearly 98% of GDP for the 2023-2024 fiscal year, according to Statista, highlighting the unsustainable debt burdens faced by many economies.
In stark contrast, Bitcoinâs fixed supply makes it resistant to such inflationary pressures, a point echoed by many of its supporters who view it as a hedge against the monetary policies of central banks.
