It seems as if the acceptance of Bitcoin futures into the mainstream was last year’s news.
With the release of Bitcoin Futures on the CBOE in early December and then the CME in late December, many have taken the opportunity to finally trade derivatives on the digital asset.
There are a number of exchanges such as Nasdaq and Kantor Fitzgerald that are clamouring over each other to offer similar products.
Yet, there seems to be one agency that sees things quite differently. The European Central Bank (ECB) has come out vehemently against the instrument.
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Familiar Banker Paranoia
The exact arguments against Bitcoin by the ECB were that they are a threat to financial stability and the banking system. The comments were made by an ECB director, Yves Mersch with a German newspaper.
As if oblivious to the groundswell of movement towards the instruments across the ocean, Mersch said that
What concerns me most, is when financial market infrastructures such as stock exchanges enter this business. That poses a major threat to financial stability
He seemed to lay his argument on the case that if banks were to get involved and other financial participants could become jointly liable, there is a chance of financial contagion with a fall in prices.
However, his argument hinges on the fact that banks and financial institutions cannot be trusted to manage their risk effectively. This seems to be an indictment on the ECB one would think.
If a bank cannot establish the maximum that it could lose based on a counterparts credit risk, then that bank should not have been allowed to operate by the ECB in the first place.
It is important to take note of the comments that Mr Mersch was making just a month ago to his fellow commercial bankers. He suggested that these banks implement an instant payment solution “as soon as possible”.
Mersch also said that the ECB would “experiment with cash on different digital technologies”. He went on to say that
Other adventurous applications of a more disruptive nature are simply not robust enough
One is able to interpret these comments whichever way they want, yet it does sound that the ECB sees a threat in Bitcoin. This is precisely the reason that Bitcoin has become so popular.
Other ECB Sceptics
Mersch is not alone at the ECB in distaste of Bitcoin. For example, the head of Austria’s central bank Ewald Nowotny has said that there needs to be more oversight over Bitcoin transactions.
He wanted to see a Value added tax placed on Bitcoin transactions as he held the view that these were not currencies but assets. Hence, he claimed that they are technically liable for VAT.
He also pondered the effectiveness of their iniatives to limit bank note sizes and other regulations given that Bitcoin is able to be used so effectively to “launder money”.
What he may have failed to realise though is that the more a central bank tries to control the lives of the European citizenry, the more they will turn to blockchain technology as a solution.
EU Regulation in the Pipes
There are other ways in which governments are trying to regulate and oversee Europeans who are involved in Bitcoin transactions. For example, there are suggestions that the EU is considering a database of Bitcoin users.
Despite the clear violations of privacy that this presents, it does show that the impact Bitcoin is having is substantial and uncontrollable. It remains to be seen if it can ward of the centralised threats to its existence.