Regulators around the world are stepping up 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 “keep out” major cryptocurrencies.
Fed proposes ban on Bitcoin
On October 17, researchers at the Federal Reserve Bank of Minneapolis published a paper suggesting that banning Bitcoin and imposing additional taxes could allow governments to maintain persistent budget deficits.
A primary budget deficit occurs when government expenditures, excluding interest payments on existing debt, exceed revenue. The paper emphasized the concept of a “permanent'' primary budget deficit, in which the government intentionally continues to overspend indefinitely.
The researchers argued that Bitcoin creates a “balanced budget trap” by forcing governments to balance their budgets. The decentralized nature of Bitcoin is seen as an obstacle to fiscal policy, especially by governments seeking to maintain permanent deficits using nominal debt. Because Bitcoin has a fixed supply and is directly tied to natural resources, it challenges traditional financial strategies by providing an alternative financial asset.
The paper suggests that “solutions” include banning Bitcoin or introducing taxes to alleviate the problem, stating:
“A legal ban on Bitcoin or a tax on Bitcoin is a form of financial repression and can be useful when a government's ability to use sales taxes is limited.”
ECB economist warns of social impact of Bitcoin
On October 20, ECB economist Jürgen Schaaf expressed concern about Bitcoin's rising price, arguing that it was disproportionately benefiting early adopters. He warned that latecomers and non-holders could face significant financial 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]
Scharf said that even if Bitcoin prices continue to rise without crashing, the wealth gained by early investors will come at the expense of those who join later or don't invest at all. He explained.
He stressed that Bitcoin does not increase the productive capacity of the economy. As early adopters gain wealth, they are likely to spend more, which may ultimately reduce the spending power of others.
Scharf said that in a scenario where Bitcoin prices continue to rise, this change in wealth could have lasting effects, with early movers enjoying luxury consumption while latecomers face financial hardship. He pointed out that there is. He said:
“The impact on society is real: ‘missing out’ on Bitcoin means actual poverty compared to a world without Bitcoin, rather than just an opportunity loss. ”
Scharf suggested that Bitcoin's growth is being driven by wealth redistribution, and non-holders should be aware that this is done at their own expense. He warned that pro-Bitcoin politicians could further distort the distribution of wealth and threaten social stability, and called for policies to curb or potentially eliminate BTC's expansion.
Schaaf's views confirm the position he and ECB economist Ulrich Bindtheil espoused in a recent paper.
Crypto industry reaction
These reports have sparked a reaction from the crypto community, with several experts considering these reports as an attack on Bitcoin.
Matthew Sigel, head of digital asset research at VanEck, said the Minneapolis paper reflects a growing effort to target Bitcoin.
However, Siegel insisted that these proposals do not change Van Eck's predictions about future central bank adoption of Bitcoin. VanEck predicted in July that Bitcoin's price could reach $2.9 million by 2050, making it an integral part of the global financial system.
Bitcoin analyst Tuer Demeester also expressed concern about the ECB paper, warning that the proposal could lead to increased taxation and regulation of cryptocurrencies.
He wrote:
“In all the years I have been monitoring the Bitcoin space, this is the most offensive document that has come out from the authorities. The gloves are off. These central bank economists are now It is clear that they consider this 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.]
