Global regulators discussing ways to ‘eliminate’ Bitcoin highlights cracks in fiat system

Industry experts said the regulators' paper is one of the most aggressive in recent history.

Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.

Global regulators have intensified their efforts against Bitcoin, with researchers from the Federal Reserve Bank of Minneapolis and economists at the European Central Bank (ECB) making bold recommendations to “eliminate” the leading crypto.

Feds proposes Bitcoin ban

On Oct. 17, researchers from the Federal Reserve Bank of Minneapolis released a paper suggesting that banning Bitcoin and imposing additional taxes on it could help governments sustain their ongoing budget deficits.

A primary deficit occurs when government spending exceeds revenue, excluding interest payments on existing debt. The paper emphasized the concept of a “permanent” primary deficit, where governments intentionally continue outspending indefinitely.

The researchers argued that Bitcoin poses a “balanced budget trap” by compelling governments to balance their budgets. Bitcoin’s decentralized nature is seen as a hurdle to fiscal policy, particularly for governments looking to maintain permanent deficits using nominal debt. With its fixed supply and direct ties to natural resources, Bitcoin challenges traditional fiscal strategies by providing an alternative financial asset.

Deemed a “solution,” the paper suggests either banning Bitcoin or introducing taxes to alleviate this issue, stating:

“A legal prohibition of bitcoin or a tax on bitcoin are forms of financial repression that may be useful when the ability of the government to use consumption taxes is limited.”

ECB economist warns of Bitcoin’s societal impact

On Oct. 20, ECB economist Jürgen Schaaf raised concerns about the rising price of Bitcoin, arguing that it disproportionately benefits early adopters. He warned that latecomers or non-holders could face 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 wealth gains for early investors come at the expense of those who enter later or don’t invest at all.

He emphasized that Bitcoin does not increase the economy’s productive capacity. As early adopters gain wealth, they are likely to consume more, which could ultimately reduce the consumption power of others.

In a scenario where Bitcoin prices keep rising, Schaaf noted that this shift in wealth could have lasting effects, with early adopters enjoying luxury consumption while latecomers face financial hardship. He stated:

“The societal impact is real: “missing out” on Bitcoin different than just a lost 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 wealth redistribution, which occurs at their expense. He called for policies to curb BTC’s expansion or potentially eliminate it, warning that pro-Bitcoin politicians could further skew wealth distribution, threatening societal stability.

Schaaf’s view corroborates a position he and fellow ECB economist Ulrich Bindseil espoused in a recent paper.

Crypto industry responds

These reports have sparked reactions from the crypto community, with several experts viewing them as an attack on Bitcoin.

Matthew Sigel, Head of Digital Assets Research at VanEck, remarked that the Minneapolis paper reflects an escalated effort to target Bitcoin.

However, Sigel maintained that these proposals do not alter VanEck’s forecast of Bitcoin adoption by central banks 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 voiced concerns about the ECB’s paper, warning that the proposals could lead to stricter taxation and regulation of cryptocurrencies.

He wrote:

“In all the years I’ve been monitoring the bitcoin space, this is by far the most aggressive paper to come from authorities. The gloves are off. It’s clear that these central bank economists now see bitcoin as an existential threat, to be attacked with any means possible.”

[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.]

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