The Cryptocurrency Market Is Growing Exponentially, yet Europe Remains Sceptical

The European Central Bank (ECB) is one of the few institutions that is really sceptical about Bitcoin and its rally. The cryptocurrency market as a whole has seen phenomenal growth in 2017, growing from a $17.7 billion in market cap at the beginning of the year to $766 billion currently.

With an increasing number of participants from the developed (US, Canada, and Japan) as well as the developing (South Korea, China, Russia, and India) markets joining the crypto space, it remains hard to believe that Europe remains so sceptical about it. A top official from the European Union’s central bank sees it as means to blithely launder money around the globe.

Here are the 3 key reasons why the ECB doesn’t seem to be in the mood to openly embrace Bitcoin or other cryptocurrencies:

Threat to Financial Stability

The European Union sees the rise in cryptocurrencies as a threat to financial stability. The ECB director Yves Mersch sees Bitcoin futures as a “major threat.” According to Mersch, when financial market infrastructures such as stock exchanges enter this business, they create a joint liability which, in turn, can create difficulties for the whole system. The ECB, for its part, doesn’t intend to partake in this joint liability proposition.

No Backing

As also highlighted by Mersch, the central bank doesn’t see cryptocurrency as having the potential to become a real alternative to central bank money. “Money needs trust. Public currencies, for example, the Euro, have the backing of public institutions such as the ECB. Many of these currencies have no backing, nothing,” he said. Mersch’s concern stems from the speculative hype around cryptocurrency trading.

Call for a Value-added Tax (VAT) on Bitcoin

Then there is Ewald Nowotny, the ECB’s governing council member and head of Austria’s central bank, who has been calling for new taxes and regulation on Bitcoin. “We need a value-added tax on Bitcoin since it’s not a currency,” said Nowotny.

Clearly, Europe is no mood to openly embrace Bitcoin or any other cryptocurrency. Earlier in September 2017, Mario Draghi, the president of the ECB had noted cybersecurity as his primary concern relating to cryptocurrencies. Vice president, Vitor Constancio, has even been heard comparing the rise of crypto assets to tulip mania – the 17th-century trading bubble experienced in the Netherlands.

Nonetheless, the crypto market continues to grow at a steady pace. And it wouldn’t hurt to remain watchful for a time when the ECB’s tables turn in favor of Bitcoin and other crypto assets.