The 2X Bitcoin Strategy ETF (BITX) plummeted by over 5% on Friday amid growing concerns over potential government regulations targeting Bitcoin. The sell-off followed a recent paper by the Federal Reserve Bank of Minneapolis, which suggested that assets like Bitcoin may need to be taxed or banned for governments to sustain ongoing budget deficits.
The study argued that Bitcoin's fixed supply creates challenges for policy implementation in economies where governments rely on permanent deficits funded by nominal debt. To resolve this "balanced budget trap," the researchers proposed banning or taxing Bitcoin, stating that "A legal prohibition against Bitcoin can restore unique implementation of permanent primary deficits, and so can a tax on Bitcoin."
The paper's findings echo recent criticism from the European Central Bank, which also scrutinized Bitcoin and alleged that older Bitcoin holders profit at the expense of newer ones. Both institutions have suggested regulating or banning Bitcoin to prevent its price from rising, which could threaten their ability to maintain debt financing and monetary policy.
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