Bitcoin is being artificially propped up and should not be legitimised by regulators or financial companies as it is more akin to gambling, the European Central Bank has said.
Bitcoin and other cryptocurrencies have been variously presented as an alternative form of money and a shield from the inflationary policies pursued by major central banks such as the ECB in recent years.
But a 75% fall over the past year, just as inflation reared its head, and a string of scandals including the collapse of the FTX exchange in November have given critics among central bankers and regulators ammunition to fight back.
The value of Bitcoin peaked at nearly $69,000 a year ago before falling to around $17,000 by mid-June, where it is still hovering now.
In a blog post using unusually scathing language, the ECB said Bitcoin's recent stabilisation was "an artificially induced last gasp before the road to irrelevance".
"Big Bitcoin investors have the strongest incentives to keep the euphoria going," authors Ulrich Bindseil and Juergen Schaaf wrote.
"At the end of 2020, isolated companies began to promote Bitcoin at corporate expense. Some venture capital firms are also still investing heavily," they said.
They said venture capital investments in the crypto and blockchain industry totalled $17.9bn (€17.2bn) as of mid-July but did not provide evidence of price manipulation.
Regulators all over the world are drafting rules for the crypto world, a complex ecosystem that ranges from stablecoins supposedly backed by conventional currencies to forms of lending that happen on the blockchain, or distributed ledger, that underpins those coins.
The ECB blog said regulation could be "misunderstood for approval".
"Since Bitcoin appears to be neither suitable as a payment system nor as a form of investment, it should be treated as neither in regulatory terms and thus should not be legitimised," the authors said.
They said cryptocurrencies would be best framed as betting or gambling by regulators.
The authors added in the blog that the involvement of asset managers, payment service providers, insurers and banks with crypto "suggests to small investors that investments in Bitcoin are sound".
"The financial industry should be wary of the long-term damage of promoting Bitcoin investments — despite short-term profits they could make," the authors of the blog said.
The ECB's words carry weight because it is the top supervisor of eurozone banks and has a big say on the EU's financial regulation.