Is a Bitcoin ETF Beneficial or Damaging?


One of the most pertinent questions surrounding Bitcoin today revolves around the anticipated ETF approval by the US Securities and Exchange Commission. The commission will rule on whether to approve or disapprove the VanEck SolidX Bitcoin Trust ETF on September 30. So far this year, the U.S. financial watchdog has rejected a fund proposed by Cameron and Tyler Winklevoss, postponed a conclusion on whether to greenlight VanEck and Solid X's proposed ETF and slapped down several bitcoin ETF proposals.

Bill Barhydt, chief executive of bitcoin payment start-up Abra, said that's because, so far, the applicants haven't fit the financial archetype that the U.S. Securities and Exchange Commission (SEC) is looking for. As to when the SEC might finally allow a bitcoin ETF, Barhydt said he would "bet" on one garnering regulatory backing within a year.

"It's going to happen in the next year, I would actually make a bet on it. There is too much demand for it."

Even though most key players within the ecosystem do not see an ETF as an absolutely necessary factor towards the development of Bitcoin, most are in agreement that it would have a significant short-term effect whenever it happens. Some have even predicted an ETF to be the catalyst that the market is waiting for before it next phase of another bullish run.

Andreas Antonopoulos, the author of the book ‘Mastering Bitcoin’ and noted bitcoin advocate, insists that the long-term implication of such fund will do more harm than good for the original cryptocurrency.

One of the major reasons why Antonopoulos thinks that an ETF is a bad idea for Bitcoin is the pseudo-centralization effect that it will introduce into the ecosystem. What this means is that investors who hold no keys will have no part to play in decision making processes within the ecosystem. Rather, their rights and powers contribute to what would become an enormous concentration of power in the hands of the custodians who hold the keys. In the long run, decision making processes within the ecosystem will lose its original democratization.

In this case the investors do not hold or own actual Bitcoins. Antonopoulos says:

“ETFs fundamentally violates the underlying principle of peer-to-peer money, where each user is not operating through a custodian but has direct control of their money because they have direct control of their keys”.

However, according to him the inevitability of an eventual ETF for Bitcoin is not in question. This is because of the enormous market appetite coupled with the very little technical knowledge that exists in the ecosystem. This makes it difficult for institutional investors to hold Bitcoins directly, despite their huge desire to participate in the existing market.

Antonopoulos foresees the creation of two categories of institutional investors in the future. These would comprise of those who have the technical knowhow to actually hold real Bitcoin and gain all the advantages associated with it, and those who depend completely on intermediaries.

Used resources: https://www.cnbc.com/2018/09/04/sec-will-approve-a-bitcoin-etf-in-the-next-year-abra-ceo.html, https://www.ccn.com/bitcoin-etf-will-likely-be-approved-next-year-asset-manager/, https://www.ccn.com/andreas-antonopoulos-a-bitcoin-etf-is-inevitable-but-damaging/