Global regulators have intensified their efforts against Bitcoin, with researchers at the Federal Reserve Bank of Minneapolis and economists at the European Central Bank (ECB) making bold recommendations to ‘eliminate’ the leading crypto.
Feds Propose Bitcoin Ban
On October 17, researchers at the Federal Reserve Bank of Minneapolis released a paper suggesting that banning Bitcoin and imposing additional taxes on it could help governments maintain their ongoing budget deficits.
A primary deficit exists when government expenditure exceeds revenue, excluding interest payments on existing debt. The paper emphasized the concept of a “permanent” primary deficit, where governments deliberately continue to outsource their spending indefinitely.
The researchers argued that Bitcoin poses a “balancing budget trap” by forcing governments to balance their budgets. Bitcoin’s decentralized nature is seen as a hurdle for fiscal policy, especially for governments seeking to maintain permanent deficits using nominal debt. With its fixed supply and direct ties to natural resources, Bitcoin challenges traditional budgeting strategies by providing an alternative financial asset.
Considered a ‘solution’, the article suggests banning Bitcoin or introducing taxes to alleviate this problem, stating:
“A legal ban on bitcoin or a tax on bitcoin are forms of financial repression that could be useful when the government’s ability to use consumption taxes is limited.”
ECB economist warns about Bitcoin’s social impact
On October 20, ECB economist Jürgen Schaaf expressed concerns about Bitcoin’s rising price, arguing that early adopters are benefiting disproportionately. He warned that latecomers or non-holders could suffer significant economic disadvantages as a result.
[Editor’s Note: In the fiat system, the top 1% own more wealth than the bottom 95% of the world’s population put together]
Schaaf explained that even if Bitcoin prices continue to rise without collapsing, the capital gains for early investors will come at the expense of those who get in later or don’t invest at all.
He emphasized that Bitcoin does not increase the productive capacity of the economy. As early adopters become wealthier, they are likely to consume more, which could ultimately reduce the consumption power of others.
In a scenario where Bitcoin prices continue to rise, Schaaf noted that this shift in prosperity could have lasting consequences, with early adopters enjoying luxury consumption while latecomers face financial hardship. He stated:
“The social impact is real: ‘missing out’ on Bitcoin is more than just a missed opportunity, it means actual impoverishment compared to a world without Bitcoin.”
Schaaf suggested that non-holders should recognize that Bitcoin’s growth is fueled by a redistribution of wealth that comes at their expense. He called for policies to curb or possibly eliminate BTC’s expansion, warning that pro-Bitcoin politicians could further skew the distribution of wealth, endangering societal stability.
Schaaf’s view confirms a position that he and fellow ECB ecologist Ulrich Bindseil defended in a recent article.
Crypto industry responds
These reports have sparked reactions from the crypto community, with several experts considering them an attack on Bitcoin.
Matthew Sigel, head of Digital Assets Research at VanEck, noted that the Minneapolis paper reflects an escalated attempt to target Bitcoin.
However, Sigel maintained that these proposals do not change VanEck’s prediction about central bank adoption of Bitcoin in the future. In July, VanEck predicted that Bitcoin could reach a price of $2.9 million by 2050, becoming an integral part of the global financial system.
Bitcoin analyst Tuur Demeester also expressed concerns about the ECB’s document, warning that the proposals could lead to stricter taxation and regulation of cryptocurrencies.
He wrote:
“In all the years I have been watching the Bitcoin world, this is by far the most aggressive piece of paper to come out of the authorities. The gloves are off. It is clear that these central bank economists now see bitcoin as an existential threat that must be attacked by any means necessary.”
[Editor’s Note: Over 57% of all Bitcoin is held by private individuals, while governments own roughly 2%. Further, any attempt to ban Bitcoin in the past has failed to hinder its growth due to its security design. Even if every Bitcoin miner in the United States were switched off tomorrow due to a ban, it would only lead to a potentially increased block time, which would be fixed with the next difficulty adjustment, and Bitcoin would carry on.]