Bitcoin ETF — a Trojan Horse
Why cash-only ETFs contradict the basic idea of Bitcoin
In my last article on the Bitcoin ETF, I already explained why Satoshi Nakamoto would be disappointed with the people investing in this ETF. Based on new information about the ETF approval, I would like to explain below why my opinion has not changed so far.
On December 18, it was announced that the SEC will approve only cash-only transactions (deposits and withdrawals) while in-kind transactions will not be accepted. This means that a Bitcoin ETF can only be set up by purchasing Bitcoins with dollars. It is not possible for applicants to contribute existing bitcoins to the ETF.
The reason for this could be that the SEC wants to give applicants a fair start on a level playing field. Grayscale, which already owns a Bitcoin Trust and already has Bitcoins itself, could otherwise contribute Bitcoins at the start. This would give the ETF a larger market capitalization and thus attract more investors.
Furthermore, the origin of the Bitcoins in the case of in-kind transfers is unclear. Cash-only would avoid this uncertainty.
The financial elite has woken up to Bitcoin
With the applications for Bitcoin ETFs, it becomes clear that the banks have understood that they need to take the reins back into their own hands. The crypto market was the “little man’s” chance to break free from the shackles of the traditional financial system. It still is, and I believe that the technology behind it will develop to such an extent that it will automatically replace the traditional system according to the principle of creative destruction, as Schumpeter so beautifully described it.
Why ETFs and not bans?
A ban is out of the question for Bitcoin. As a rule, bans do not work. If even one country does not participate, that country will prosper. Research and development always look for the places with the best conditions. The ban on Bitcoin was only recently lifted in Nigeria. China is also opening up again with regard to cryptos in general.
But what does the ban on Bitcoin have to do with ETF applications? Since a ban on Bitcoin or crypto makes little sense, the only other option is participation or, worse, infiltration of the system. That’s what ETFs are to me, a Trojan horse.
BlackRock in particular did not just invest in Bitcoin with the ETF. Even before that, BlackRock bought shares in mining companies such as Riot, Mara, CIFR & Wulf. BlackRock also holds shares in companies that hold Bitcoin themselves, such as Paypal, Tesla, Coinbase & MicroStrategy.
Some will argue that ETFs are just another way to buy Bitcoin. The problem I see with this, and why I still think the ETFs are a Trojan horse, is that many investors will probably buy Bitcoin through the ETFs and not directly. Due to the condition that these are cash-only ETFs, investors will not be able to cash out these bitcoins. This means that there may be a concentration of bitcoins in the ETFs and thus an unequal distribution. In this way, a large proportion of bitcoins will continue to be held by the traditional banking system. However, it is suggested to customers that they are part owners of the Bitcoin network. The idea of being your own bank with Bitcoin is lost. ETFs keep you in the financial system. Of course, the profits from the increase in value of the ETF can be seen as a kind of hedge against the devaluation of fiat currencies, but Bitcoin is much more than a hedge against inflation. The idea behind Bitcoin has the chance to change the thinking in our society and create a more responsible policy. ETFs cannot achieve this.
The classic game of dumb money and smart money
Another point of criticism I see is that the big banks can continue to play their game with their “smart money”. Prices are driven up. Advertising is done just to generate fomo and then sell at the peak when the dump money blindly jumps in. In the crypto market, the game becomes even easier for the big banks as it is a much more volatile market, and the crypto market is highly emotionally driven.
It is often argued that trying to buy almost all bitcoins would lead to astronomical prices and therefore it is impossible to do that. This makes sense, but it is not necessary to buy all bitcoins. Only so many would have to be bought that the high prices would become a tool to exclude as many market participants as possible. The investment banks could use their capital to buy higher prices for much longer than the retail sector can. As a result, retailers will only be able to buy smaller and smaller quantities of Satoshi until they can no longer afford even one Satoshi. The starting price of an ETF can then again be determined by the banks. This can then also be set very low, suggesting to investors that they can buy large shares of bitcoins. However, the ETF only promises to replicate the price change of the underlying asset. Nothing more. The true benefit of Bitcoin is lost.
Bitcoin’s correlation with the traditional financial market
One of the hopes was always to decouple Bitcoin from the traditional financial system. However, to date, Bitcoin still shows a correlation to the traditional financial markets. For example, when prices on the traditional markets fall, the price of Bitcoin has also fallen. Although there have always been phases in which this has not been the case, Bitcoin has not yet been able to decouple over a long-term period. As the banks are institutions from the “old system”, I believe that the correlation with the traditional markets will increase again with the introduction of ETFS.
I would like to outline a scenario for this. The risk of a recession is increasing at the moment. I don’t believe in the soft-landing narrative. That’s what they tried to sell us in 2007. We all know what happened in 2008. The Bitcoin OGs are banking on Bitcoin protecting them from this downturn, as it was Satoshi Nakamoto’s idea, especially if central banks and governments start printing money and bailing out banks again. But the players in the traditional market think differently. If there is a recession, they will get out of risk assets. There will be a sell-off of Bitcoin ETFs. Bitcoin will not be able to withstand this selling pressure and will therefore not be able to protect investors’ money. Thus, the ETFs will ensure that Bitcoin is once again more in line with the rules of the fiat money system.
I realize that the ETFs could not have been avoided. As I write these words, the Bitcoin ETFs have already been approved. I could easily have done without the ETFs. Buyers of Bitcoin who understand the idea behind it have not been deterred from buying and hodling it by the bad reputation that Bitcoin has been given afterwards. Understanding and acceptance would have increased even without the ETFs. The fiat money system and its gradual devaluation would have taken care of that all by itself. It would just have happened a little more slowly. This would also have guaranteed lower entry prices for an even longer period of time. With the approval of ETFs, it is difficult to predict how high the price will move in the coming weeks or months.
I hope I am wrong with my concerns. I would therefore be happy to receive counterarguments in the comments section that convince me otherwise.
I appreciate your feedback, whether you agree with me or not, so please comment, highlight or clap.
If you’re interested in the books I’m reading, check them out here (I update the list regularly):
Follow me on Twitter: https://twitter.com/shimy_yay
Follow me on Gettr: https://gettr.com/user/shimy_yay
Disclaimer: The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial, legal or tax advice. The content of this text is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. The author does not guarantee any particular outcome.
