Although many traders are looking forward to the emergence of ETFs on Bitcoins, some supporters of cryptocurrencies are, at best, indifferent to the prospect of such a tool. The representative of the first group of unconditional Bitcoin-ETF enthusiasts is, for example, entrepreneur Jonathan Hamel, who talks about how approval of Bitcoin-ETF will lead to an “epic” inflow of institutional capital into the ecosystem — that is, the flow of “billions” dollars in the form of new investments.
But if you talk with some of the first users of cryptocurrency and the “veterans” of the blockchain technology, you can hear notes of indifference, and even skepticism.
So, the founder of the American company Bitcoin Advisory, Pierre Rochard, notes:
“In fact, the ETF model is not too different from a partial bank reservation.”
Last week, the US Securities and Exchange Commission postponed until February 27, 2019, the decision on the VanEck and SolidX application. This means that we are waiting for another two months, during which users will bite their nails. Of course, this category of unfortunates includes only those who believe that Bitcoin-ETF will become an incentive for Bitcoin and a salvation for the entire cryptocurrency market.
However, cryptocurrency analyst Nick Bhaktia writes commenting on the work of Grayscale’s Bitcoin Investment Trust launched in 2015:
“I don’t think that additional ETFs can improve Bitcoin liquidity more than GBTC already does.”
Although Bhakhtia noted that he nevertheless welcomes those approved by the ETF regulator, because their appearance can strengthen the masses’ confidence in this new class of attacks, some veterans of the crypto sphere go so far as to say: ETF can harm the wider ecosystem. From their point of view, the concept of ETF contradicts the model of a peer-to-peer financial system of assets that are stored by users themselves.
In particular, Lightning Labs developer Alex Bosworth remarks: “We are talking about a kind of central authority, while Bitcoin’s competitive offer lies precisely in its decentralization, global character.”
According to Bosworth, the most serious risk associated with a Bitcoin ETF is that their appearance can push institutions to work together to affect the ecosystem. Referring to the unrealized 2017 New York agreement – when leading crypto companies planned to support unpopular updates of the Bitcoin network, despite public outrage, – Bosworth explained:
“We have seen how companies that provide depository storage of foreign coins position themselves as if they belong to them and act on behalf of their clients, even without consulting the latter … We do not want centralized structures to change the basic parameters of Bitcoin”.
For the same reason, Christopher Allen, a former Chief Engineer of Blockstream and cryptocurrency veteran, does not trust institutes working on the creation of regulated Bitcoin-ETF:
“The real reason why they need it is simple: Bitcoin-ETF will give them the opportunity to play financial games, increasing the size of the interest rate, compared to what they can afford if there wasn’t such a tool. I think that the consequences of its occurrence will be numerous. How do we convey to people what fiduciary responsibility and custody service really is? ”
Bhaktia agreed that the industry is moving towards making its “depositary custody and trust management model” a priority, but does not believe that such institutional products will significantly affect “traditionalist cryptopunks”:
“People who are currently storing their bitcoins will not be in a hurry to accept the ETF, because they have a different interest.”
Other “bitcoin veterans” are retail investors who place high hopes on ETFs, believing that this tool will be able to save the sinking prices of cryptocurrencies. However, the question is how realistic such hopes are.
According to Rochard, if Bitcoin-ETF are approved in the near future, he expects that they will get even a smaller market share than the ETF for gold (he estimates that the latter tool represents only 2% of the global gold reserve).
Other experts believe that any price growth stimulator will have only a short-term effect. In November, Ari Paul, the head of the BlockTower Capital investment department, offered to recall how the addition of Bitcoin futures spurred speculation, but a few months later the price rolled back.
Paul remarked: “If the ETFs are launched, then we should not expect a sharp influx of large institutional funds. Yes, immediately after the announcement, a price rally will begin, but we are not talking about the fact that we suddenly get $50 million from institutional investors – just speculators will drive up the price. ”
Also, it is important to remember that any euphoria (or, conversely, concern) about the Bitcoin-ETF is still of an “academic” nature; in other words, the possible consequences are speculative. On December 5, SEC Commissioner Hester Peirce suggested that users “do not roll lips”, since the regulator may approve Bitcoin-ETF in a few years.
Even if this happens, supporters of Bitcoin are wondering how this structure, within which the fund owns the asset and distributes ownership in the form of shares, will cope with the problem of a specific cryptocurrency structure. For example, what if a new fork of the network occurs, similar to the one that caused bitcoin cash last year?
“Will they [ETF depository structures] give people the money back or become a mutual fund?” I don’t think that there are precedents here [in the capital markets], since Bitcoin has no legal identity, and corporations have one.”
Allen remarks that ETF issuers will have to explain how they intend to keep and keep track of bitcoins so that products representing this underlying asset are not loaned again and again in a process known as repossession.
According to Caitlin Long, co-founder of the Wyoming Blockchain Coalition, repossession contradicts Bitcoin’s very ethos, since its stock is limited (21 million units). Thus, there is no way to help lenders out if borrowers should owe more bitcoins than ETF issuers actually have. However, Gabor Gurbacs, VanEck’s head of the digital asset management strategic planning department, said his company’s offer would include a cold storage option, regular reports to dispel any doubts about a possible repossession, as well as a guide in case of a bitcoin fork.
What is your personal opinion about Bitcoin ETF?