A recent research paper released by the European Central Bank on October 12, 2024, posits that veteran Bitcoin (BTC) holders are profiting at the expense of newer investors. The authors advocate for regulation of this limited digital currency to curb its price escalation or, potentially, to impose a complete ban.

According to the study, individuals who invested in BTC at earlier stages or during market downturns are selling their assets for a profit to newer participants. This observation aligns with the foundational principle of financial markets where investors typically seek to acquire assets at lower prices to sell them at a profit.

Based on these insights, the authors concluded that stringent price regulations should be implemented to mitigate perceived exploitation and prevent civil unrest stemming from wealth disparities:

“Current non-holders must recognize the necessity to oppose Bitcoin and push for legal measures to either stabilize its prices or seek its total elimination.”

The authors further claimed that Bitcoin is infrequently utilized as a payment option, while erroneously referencing a previous finding that characterized Bitcoin as the go-to transaction method for illicit activities. However, a report from May 2024 by the United States Treasury Department has shown that cash remains the dominant choice for unlawful transactions.

First page of ECB paper. Source: European Central Bank, SSRN.

Interestingly, the study fails to address the reasons behind Bitcoin’s considerable price surge since its launch in 2009. The paper also overlooks the initial intent of Bitcoin’s pseudonymous creator, Satoshi Nakamoto, who envisioned the asset as a decentralized payment system and a safeguard against inflationary fiat currencies.

Addressing the Issue of Sovereign Debt

The inconsistencies present in the paper—asserting Bitcoin lacks intrinsic value while also suggesting it could destabilize society—ignore the pressing issue of rampant inflation imposed by governments and central banks.

As reported by Statista, the UK’s public sector debt for the 2023-2024 fiscal year has skyrocketed to about 98% of its GDP, representing the highest ratio recorded since the 1960s.

The front page of the January 3, 2009 edition of The London Times featured in the Genesis block. Source: Camarada Sobrinho.

This reference to fiscal irresponsibility was also included by Satoshi Nakamoto in the Genesis Block—the very first block mined in the Bitcoin network—highlighting issues surrounding rising fiat debt.

In the United States, extensive fiscal stimulus measures, including significant money printing, have contributed to a staggering 41% rise in the M2 money supply since 2020, which correlates with a growing national debt exceeding $35 trillion and a corresponding erosion of consumer purchasing power.