The new paper by two economists from the European Central Bank calls for a ban to stop Bitcoin’s price growth and the resulting social divide.
On October 12, the European Central Bank (ECB) published a new paper on Bitcoin titled “The distributional consequences of Bitcoin.” According to the document, long-term bitcoin holders would profit at the expense of new investors, characterizing this dynamic as a scenario of impoverishment for the general population. The paper states:
“Since Bitcoin does not increase the productive potential of the economy, the consequences of the assumed continued increase in value are essentially redistributive, i.e. the wealth effects on consumption of early Bitcoin holders can only come at the expense of consumption of the rest of society. If the price of Bitcoin rises for good, the existence of Bitcoin impoverishes both non-holders and latecomers.”
The authors of the paper, economists Ulrich Bindseil and Jurgen Schaaf, advocates of the digital euro and already known for their previous works “Bitcoin’s Last Stand” and “ETF Approval for Bitcoin – The Naked Emperor’s New Clothes,” argue that Bitcoin should be regulated or potentially banned. The past acquisition of bitcoin or at lower market prices by early adopters would lead to an unequal distribution of wealth and potential social instability. As a measure to counter these possibilities, the document calls for legislation to “prevent Bitcoin’s price from rising or to make Bitcoin disappear altogether.” The paper asserts:
“In any case current non-holders should realize that they have compelling reasons to oppose Bitcoin and advocate for legislation against it, aiming to prevent Bitcoin prices from rising or to see Bitcoin disappear altogether. Latecomers and non-holders and their political representatives should emphasize that the idea of Bitcoin as an investment relies on redistribution at their expense.”
The two economists continue:
“The new Lamborghini, Rolex, villa, and equity portfolios by early Bitcoin investors do not stem from an increase in the economy’s production potential; rather, they are financed by diminishing consumption and wealth of those who initially do not hold Bitcoin. Thus, ‘missing out’ on Bitcoin is not merely a lost opportunity for wealth accumulation, but means real impoverishment compared to a world without Bitcoin. This redistribution of wealth and purchasing power is unlikely to occur without detrimental consequences for society.”
The fallacy of reasoning
The thesis of Schaaf and Bindseil, which claims that Bitcoin would generate enormous social harm, appears at least superficial. The idea that current buyers would prosper at the expense of future investors or non-bitcoin holders could be applied to any financial asset. In any innovation, early adopters take significant risks for a potential future reward. For instance, have people who bought Google or Facebook shares during the IPO impoverished those who buy Google or Meta today? Have people who bought a house for $200,000 in 1995 and sell it today for $2 million impoverished new buyers? Obviously not. Trying to legislate against Bitcoin for this reason is like trying to ban Google shares because IPO buyers who held onto their shares have become multimillionaires.
Even more questionable is their proposed solution: encouraging those who don’t own Bitcoin or arrived late to actively oppose it, pushing for laws to suppress its price or cause its extinction.
Bitcoin allows anyone to protect themselves from the devaluation of fiat currency and potentially increase their purchasing power. This is true for both those who bought in 2012 and those who bought in 2022.
Furthermore, the claim that “Bitcoin does not increase the productive potential of the economy” reveals a poor understanding of the impact of the protocol created by Satoshi Nakamoto. Bitcoin has catalyzed innovation in multiple sectors: it has driven advancements in cybersecurity, the development of specialized chips and dedicated hardware, pushing the industry towards greater energy efficiency. The Bitcoin ecosystem has also led to the exploitation of previously unused energy sources, directly contributing to the expansion of the economy’s productive potential and contradicting the document’s premises.
The community’s reaction
Tuur Demeester, an analyst and advisor for Blockstream, stated:
“This new paper is a true declaration of war: the ECB claims that early bitcoin adopters steal economic value from latecomers. I strongly believe authorities will use this luddite argument to enact harsh taxes or bans.”
Frank Corva, business and political correspondent for Bitcoin Magazine, commented:
“I first bought Bitcoin 8 years ago and I also bought some last week. This makes me an earlycomer and a latecomer in a sense. Odd that they didn’t think people could be both. They must have conveniently overlooked that.”
User WalkerAmerica stated:
“If there is a single human being at the ECB with a functioning brain, they will start printing euros to buy bitcoin immediately.”
