The Distributional Consequences of Bitcoin: A Rebuttal

Demeester

Two European Central Bank (ECB) economists published a report last week that made several dubious claims about Bitcoin.

The report, titled “The Distributional Consequences of Bitcoin,” argues that those who invest in Bitcoin late are impoverished by those who invested early and that Bitcoin has failed as a payments technology.

Bitcoin analyst Tuur Demeester took to X to sound the alarm about the report.

As a former academic, I was struck by how lazy the arguments in this paper were. I've taken the time to push back on some of them.

Apart from these points, the tone of this ECB report is paternalistic, suggesting that all retail investors are unable to learn more about how markets work and why Bitcoin is important.

Toward the end of the report, Bindseil and Schaaf cite a source that claims that “unsophisticated investors are drawn into the market” as the Bitcoin bubble grows, seemingly suggesting that everyone one of these retail investors only buys at the top and sells toward the bottom of a drawdown.

I was once one of those unsophisticated retail investors, and while I first bought Bitcoin near its 2017 top, I also bought it on dozens of other occasions, including when its price dipped to local lows in 2018 and 2020. I did so because in studying Bitcoin and learning what problems it solves I came to place more faith in it than I did in the traditional monetary and financial systems.

There are many others like me, and I’d imagine that they too take offense to the ECB’s diminishing their intellectual capabilities and writing deeply biased reports that misrepresent what Bitcoin is and the reasons why people invest in and adopt it.