Spain's Central Bank: Bitcoin is Not an Effective Payment Method

Banco de España (BDE), Spain’s central financial institution, has released a report in which it noted that bitcoin (BTC) is not an effective medium-of-exchange (MoE).

Although BDE’s report did not consider the significant improvements in speed and cheaper cryptocurrency transactions now being facilitated by the Lightning Network (LN), the formal write-up mentioned that the Bitcoin network was unable to function as an efficient payment system. According to BDE, the decentralized nature of Bitcoin and the lack of third-parties to confirm transactions severely limits the cryptocurrency’s ability to facilitate mass value exchange.

Centralized Systems Are More Effective At Processing Payments

BDE’s 35-page report, titled (translated from Spanish) “Bitcoin: A solution for payment systems or a solution in search of a problem?”, stated that decentralization requires a “process of intensive validation [which] ... consumes [a lot] of resources, [thus] reducing system efficiency.”

Meanwhile, “centralized systems with an intermediary trusted by the parties allow the design of much simpler and cheaper [transaction] systems”, BDE’s report asserted.

The report’s author, Carlos Conesa, BDE’s deputy general director of financial innovation and market infrastructures, argued that proper payment systems should facilitate the transfer of funds between two parties in a quick, secure, and cost-effective manner. According to Conesa, the Bitcoin network cannot settle transactions efficiently.

In the report, Conesa also mentions that the Bitcoin network can only handle about 600,000 transactions per day - which is “insignificant” compared to the more established payment processors.

Although Bitcoin’s payment system may not be perfect, there are many analysts who believe the pseudonymous cryptocurrency is able to function as a MoE and also as a store of wealth. Clem Chambers, CEO of, a financial website focused on helping private investors, recently explained why he thinks bitcoin is real money: CEO Says Bitfcoin Is "An Excellent Means Of Exchange"

Chambers revealed that he had “made a lot of money out of crypto” and that he “can tell you categorically that” bitcoin has all the essential properties, or characteristics, of money. He argued that bitcoin serves as “an excellent means of exchange” because users “can’t reverse a BTC payment like a payment by credit card.” By bringing finality to transactions, merchants that accept bitcoin don’t have to worry about receiving backcharges, months after they’ve already provided a service or product, Chambers explained.

Notably, the experienced financial professional pointed out that business-to-business (B2B) transactions involving fiat currencies can only be processed during business (or banking) hours. However, crypto transactions with BTC are available all the time, as Chambers remarked:

Bitcoin is 24/7/365, the banking system is not. The blockchain works weekends, holidays and evenings, like our international sales staff and our websites.

How Bakkt Can Bring the Crypto Space an Institutional Investor Influx

Cryptocurrency enthusiasts have for years been waiting for institutional investors to enter the space. While the introduction of bitcoin futures contracts on regulated exchanges in late 2017 didn’t gain a lot of traction, but Bakkt may.

Bakkt is a long-awaited bitcoin futures exchange and on-boarding platform from the Intercontinental Exchange (ICE) - the parent company of the New York Stock Exchange – and it’s set to launch this year. Bakkt itself has remained tight-lipped over the precise launch date after delaying its launch last year, with ICE CEO Jeff Sprecher in February simply saying “later this year.”

It’s possible that this quarter may see the launch or at least more news about when the exchange is finally coming. At the end of March, Bakkt CEO Kelly Loeffler explained:

While we’re not yet able to provide a launch date, we’re making solid progress in bringing the first physical delivery price discovery contracts for bitcoin to the U.S.

Bakkt’s launch could be a major milestone for the cryptoasset industry. A venture backed by Microsoft and Starbucks, its institutional pedigree alone will switch many cautious investors on. Specifically, the firm is set to help consumers pay for goods and services with cryptocurrencies, with Starbucks being the flagship retailer in its arsenal.

Bakkt’s Bitcoin futures contracts will be the first physically-settled derivatives on a regulated trading platform. This means investors will receive the contract’s underlying asset, bitcoin, when it expires.

Currently the Chicago Mercantile Exchange (CME) offers cash-settled bitcoin futures contracts, meaning investors get the equivalent of BTC’s value in fiat when the contracts expire. This is seen by some as a major development in the cryptocurrency space, as it shows traditional finance is willing to interact with the nascent cryptoasset industry.

It’s worth noting that earlier this year the ICE’s CEO called Bakkt a “bit of a moonshot bet,”  as it was organized in a way “very different than the way ICE typically does business.” The firm has its own offices and management team, and could undergo more rounds of financing in the future.

Bakkt And a Potential Bitcoin ETF

What’s significant about Bakkt’s launch beyond this, is that it may bolster the chances of a Bitcoin Exchange-Traded fund (ETF) being approved. Such a product would make it easier for institutional investors to gain exposure to cryptocurrencies.

In August, the US Securities and Exchange Commission (SEC) rejected nine other ETF applications, in particular highlighting how those applying hadn’t provided evidence that “bitcoin futures markets are of significant size’” for an ETF to be launched.

Once Bakkt is launched its trading volumes may very well help quell the SEC’s concerns over the bitcoin futures markets’ small size as institutions and other investors may feel comfortable entering it. Larger futures contracts trading volume, increased liquidity and a well-established company involved may prove enough to convince the SEC that the time is right for a Bitcoin ETF.

Bakkt therefore represents a very significant milestone for a maturing cryptoasset industry and may well herald the “institutional influx” that many have been anticipating since 2017. Despite the markets remaining relatively flat throughout 2019 these looming decisions in the U.S. have the power to move the entire industry forward, for better or worse.