On the SEC’s Bitcoin ETF Ruling

At the end of the week, the SEC will, one way or another, rule on whether or not to permit the Winklevoss Bitcoin Trust ETF.* This decision will have several direct ramifications on the financial industry. Notably, approval of the ETF would improve the liquidity of the cryptocurrency, the price of Bitcoin would likely continue to rise as it becomes easier for less savvy investors to jump into the game, and we might soon see this and other pending ETFs, notably SolidX, traded on the New York Stock Exchange. Disapproval would likely do the opposite and subsequently preserve the monoculture of national, fiat currencies for the foreseeable future. Unfortunately, this list of ramifications is somewhat narrow, and the previous few sentences probably mean nothing to you unless you have Bitcoin yourself or work on Wall Street.

However, this ruling could have some pretty cool impacts on a macro-level, which would affect a significantly larger number of people. SEC approval of a Bitcoin ETF would signal a shift in regulatory focus, away from the efficiency of the dollar and towards resilience. This should not come as a surprise because the dollar, as a vehicle for conducting transactions, is relatively limited in the number of things it can or cannot do. Currencies, tokens, and precious metals have indeed been used as means of exchange for thousands of years; but debt-based, interest bearing, bank-issued central currency is a very particular tool with very particular biases — most significantly, a bias for growth. Since 2008, the rise of the popular cryptocurrency, Bitcoin, and other blockchain-based cryptocurrencies (aka altcoins), has caused a shift in the idea of what a currency must be.

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Launched in the wake of the error-prone trading and investment vehicles that led to the financial crisis of 2008, Bitcoin has seen its popularity rise considerably over the last few years. Recently, the value of Bitcoin has exceeded that of an ounce of gold. Partially fueled by lower transaction costs (as compared with credit cards the costs are over 5 times less expensive), the austerity measures of European countries, and an increasingly volatile geopolitical climate, SEC approval of the Winklevoss Twins ETF would have the effect of diversifying the ways in which stocks are traded and decreasing the risk of a financial crisis by providing an alternative medium of exchange.

Currency expert Bernard Lietaer does a good job explaining how, on an ecological level, the most enduring ecosystems are those with an optimal balance of resilience and efficiency — “natural ecosystems exist because they have both sufficient self-directed identity and flexibility to change. The polarities necessitate each other in an appropriate balance of harmonious complementarity. Over time, nature must have solved many of the structural problems in ecosystems. Otherwise, these ecosystems simply wouldn’t exist today.

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To many, the boom-bust cycles of the economy have become so routine that they almost feel like the way things are supposed to work. In large part, this is probably down to the difficulty measuring network structure. Sustainable viability is not something that can be measured looking only at GDP. Lietaer notes, “nobody questions the efficiency of these huge markets; but their lack of resilience has been vividly demonstrated by the Asian crisis of the late 1990s and other monetary crashes. Our global network of monopolistic national moneys has evolved into an overly efficient and therefore dangerously brittle system.

The SEC’s loosening of financial regulations to permit another currency be traded on the NYSE may perhaps even be seen as an effort to take the United States out of the boom-bust cycle of the monetary monoculture, which has led to 145 banking crises, 208 monetary crashes, and 72 sovereign debt crises since the 1970s and into a more resilient cycle with fewer catastrophic financial collapses.

* An ETF is short for exchange traded fund, and refers to marketable securities that tracks an index, a commodity, bonds, or a basket of assets like an index fund. ETFs function as a vehicle through which investors can invest. ETFs have been around for a while but until now have been used primarily for the trading of commodities and futures.

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