Not Everyone Wants a Bitcoin ETF
Debating the Impact of a Bitcoin ETF on the Crypto Ecosystem
Twitter is flush with users like crypto entrepreneur Jonathan Hamel posting about how an ETF would bring an “epic” inflow of institutional capital to the ecosystem – that is, “billions” of dollars in new investments.
But if you talk to early adopters and veteran technologists in the bitcoin community, you’ll hear resounding indifference, if not queasiness.
“I don’t think an ETF is going to be some kind of massive magnet,” Pierre Rochard, founder of the Brooklyn-based Bitcoin Advisory LLC, told CoinDesk. “Demand will continue to be driven by sentiment, rather than the availability of specific products.”
Last week, the U.S. Securities and Exchange postponed plans to reevaluate ETF proposals from financial institutions such as VanEck and SolidX to as late as February 27, 2019. This means two more months of nail-biting for those who believe the ETF would be a huge boon to bitcoin or the savior of the overall crypto marketplace.
And yet, in reference to Grayscale’s Bitcoin Investment Trust, which launched in 2015, bitcoin analyst Nik Bhatia told CoinDesk:
“I don’t see the additional ETFs improving bitcoin’s liquidity any more than the GBTC already does.”
Although Bhatia said he would nevertheless welcome a regulator-approved ETF because it might increase public trust in this new asset class, some crypto veterans went as far as to say an ETF could actually be harmful to the broader ecosystem. To them, an ETF contradicts the vision of a peer-to-peer financial network fueled by self-custodied assets.
“It’s kind of a centralizing force and the value proposition of bitcoin is it’s decentralized, global,” Lightning Labs developer Alex Bosworth told CoinDesk.
Risks of Centralization and Institutional Influence
Centralizing force
For Bosworth, the biggest risk that a bitcoin ETF presents is that it might incentivize institutions to work collectively to influence the ecosystem.
Referring to the thwarted New York Agreement in 2017 – when leading crypto companies planned to support unpopular bitcoin network updates simultaneously despite public outcry – Bosworth explained:
“We saw companies that are custodians for other people’s coins, talking as if they hold those coins and take actions that decide, on behalf of their users, without even consulting them…We don’t want to have central parties out there negotiating for fundamental rule changes in bitcoin.”
This is the same reason that bitcoin veteran Christopher Allen, the former principal architect at Blockstream, distrusts the institutions that are working to create a regulated bitcoin ETF.
“The real reason they are doing it is they can play financial games to make them a much higher interest rate than what they would otherwise,” Allen told CoinDesk. “I think there are a lot of implications of that. How do we educate people on what fiduciary responsibility and custody really is?”
Bhatia agreed that the industry is transitioning to prioritize a “trusted custody model,” but doesn’t think such institutional products will have a significant impact on cypherpunk traditionalists.
“People that currently store their own bitcoin aren’t going to rush into the ETF because they’re not looking for the same things,” he said.
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