ECB: Early Bitcoin adopters will be the only beneficiaries, latecomers and non-holders may suffer serious consequences

Odaily News A new paper by economists at the European Central Bank (ECB) titled “The Distributional Consequences of Bitcoin” argues that even in the event of a sustained rise in the price of Bitcoin, early adopters will be the only beneficiaries, while latecomers and non-holders will suffer severe consequences, even without a “bubble burst” scenario. The economists argue that Satoshi Nakamoto’s original vision of Bitcoin as a global payment system has largely failed, with people instead viewing Bitcoin as a growing investment asset. Economists Ulrich Bindseil and Jürgen Schaaf argue that Bitcoin “… does not generate any cash flows (like real estate), interest (like bonds) or dividends (like stocks) and cannot be used in production (like commodities). Therefore, “… most existing methods for calculating or estimating the fair value of an asset fail when applied to Bitcoin.” The paper argues that celebrities and thought leaders, from BlackRock CEO Larry Fink and Galaxy Digital founder Mike Novogratz to athlete Tom Brady and actors Gwenyth Paltrow and Ashton Kutcher, view Bitcoin not as a traditional asset but as an investment asset with the potential to keep growing. However, even in the event of a sustained rise in Bitcoin prices and the possibility of a “bubble burst” that does not affect holders, late adopters and non-holders will still suffer huge losses, with early adopters either selling their Bitcoin to late adopters or cashing it out for physical assets, the paper states. Because Bitcoin does not increase the productive potential of the economy, the authors argue that it can be viewed as a zero-sum game, meaning that early adopters will only benefit at the expense of late adopters or non-holders. The paper states that these harmful consequences include "…corresponding impoverishment of the rest of society, endangering cohesion, stability, and ultimately democracy." While the paper evaluates several ways that central banks could intervene in Bitcoin's price behavior, it also points out the drawbacks of several proposed interventions: "In the case of Bitcoin, [central banks] might also avoid making specific judgments and simply consider the positive impact of a sharp increase in Bitcoin prices on aggregate demand by further tightening policy, that is, implementing a higher policy rate to return aggregate demand to non-inflationary levels." (The Block)