Crypto Has Weak Fundamentals

Speaking in an interview with Bloomberg TV on Wednesday, Guindos said that this is primarily due to the novel industry's weak fundamentals.

“When you have difficulties finding out what are the real fundamentals of an investment, then what you're doing is not a real investment.”

According to him, this will result in frequent price swings and, on occasion, spontaneous volatility.

But despite this, the European regulatory body has said that Bitcoin does not significantly impact the region's economy.

Making this known in its Financial Stability Review, the ECB noted that the risks of BTC to the financial stability of the Eurogroup appear limited despite the surge in adoption and price.

However, the bank did note that the recent bull run in the crypto market far eclipsed previous financial bubbles like the “tulip mania” and the South Sea Bubble in the 1600s and 1700s

Guindos' comments follow on the back of massive sell-offs, which saw over $750 billion drained out of the market. Bitcoin has also fallen over 48% in one week.

Trouble started when one-time crypto lover Tesla halted Bitcoin payments for its EV cars. Tesla's boss Elon Musk had cited Bitcoin's energy-intensive mining process as a reason for their change of heart.

Others believe the action of Bitcoin traders taking profits since the asset breached the $65,000 mark crashed the market.

The ECB may not be the only one interested in the digital assets mania. According to a working paper by the Bank for International Settlements (BIS), the ongoing digital evolution could lead to fundamental changes to the traditional model of monetary exchange.

Pointing to a few areas this may occur, the BIS noted that digital currencies could take up the primary functions of fiat like storing value, exchange, and unit of account, leading to fiercer competition among currencies.

The report also noted that digital money issuers would have to reinvent the wheel in servicing their customers, noting that they would focus more on data gathering and social networking services. However, it said that could lead to phenomena it termed “digital dollarization,” which could eliminate the base currency of a country.

Notably, the BIS argues that digital currencies could impact private and public money and lead to the eventual demise of fiat. To forestall this, the BIS recommended creating central bank digital currencies (CBDCs) by national banks.

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