THE BITCOIN ETF RULING OPENS THE DOORS FOR THE MAINSTREAM BLOCKCHAIN
The Tenth of January saw a landmark for the crypto industry, with the US Securities and Exchange Commission (SEC) approving 11 US-listed exchange-traded funds (ETF) that track Bitcoin. While the SEC appears to have been rather grudging about this, primly pointing out that they remained skeptical about cryptocurrencies, it nonetheless represents a major step forward for crypto and is a sign of a maturing ecosystem, which Mattereum can only welcome.
So, why is this so important? Well, for a start, it is the first time in ages that the SEC has done anything remotely positive towards crypto, but more than that, it represents a further step into the financial mainstream for cryptocurrency. Mattereum is based on the belief that there is more to the blockchain than an opportunity for grift, hype, bubbles and get-rich-quick scams; that the underlying infrastructure is sound and has huge potential for being the basis for international trade in the future.
The ETF ruling is important because what an ETF does is allow people to invest in assets or groups of assets without having to directly purchase the assets themselves. For Bitcoin, what this means is that instead of needing to have your own digital wallet, or an account on a crypto trading platform you can invest in an ETF based on Bitcoin, run by an investment fund. This immediately widens the market to people who like the potential returns of Bitcoin investment, but who have been put off so far by either the technical requirements of buying Bitcoin themselves, or the appalling reputation for instability and outright fraud that crypto exchanges have earned. ETFs mean that people can now invest in crypto through established fund managers like Fidelity and BlackRock, plus funds can easily trade ETFs on stock exchanges, which has not been possible for crypto before.
While this is great, investment analysts are voicing concern about crypto ETFs. They believe these could put too much risk and volatility into Americans’ retirement accounts, given that the price of bitcoin is prone to wild fluctuations, often without warning and for reasons that are not immediately clear. Yiannis Giokas, senior director of Moody’s Analytics has been quoted as saying “The notorious price volatility of bitcoin … could expose mainstream investors to a less familiar spectrum of investment risks”. This is a weakness of pure crypto as an investment vehicle, but fortunately there are other options on the horizon.
It has been clear for some time that the mature use case for the blockchain is for trading real world assets (RWA), not for running a limited currency. Bitcoin chose not to evolve into a system that could run smart contracts, so Ethereum (ETH) was developed to meet that need. On ETH and similar chains it is possible to tokenize and fractionize RWAs and trade them on chain. While Bitcoin ETF are definitely a step forward, they are a relatively small one in the grander scheme of things, it is on chain RWA that have the greatest potential for the future. Starting with high value assets like gold and real estate, tokenization increases liquidity and hugely simplifies what are currently complex and lengthy transactions, which will open the market in such things to far more people than the relatively niche Bitcoin ETF will. RWA have the potential to hugely smooth and accelerate international trade, which will have a far greater impact in the long term. Ultimately, I would suggest, it is investment in RWA and in tokens issued by key RWA players that will have the biggest effect over time. It is good to see Bitcoin ETF bringing crypto into the mainstream, but it will be the RWA that follow that enable the blockchain to revolutionise business going forward.
Mattereum has worked hard and invested millions in developing unique and innovative lawtech solutions to make that possible. The Perez Cycle maps the development of new technologies, and shows that they go through a period of rapid growth driven by hype and often disreputable actors that creates a bubble, and when this bursts, the technology goes through a period of being seen as radioactively disreputable before any underlying functionality is adopted by mature users and put to work for successful, unflashy, purposes that finally generate real value. We have seen the blockchain go through hype, boom and bust and the ETF approval is one of the first major signs that we are now moving into the next phase, where we see it being taken up by more sober users and taking its place in the financial mainstream. Mattereum sees itself as one of those users.
To this end, Mattereum’s innovations are specifically designed to reinforce the value of RWAs by providing the missing link in the system — a means to legally tie the on-chain token representing the RWA to the physical asset itself, so that ownership can be defended in court in 172 jurisdictions worldwide. With this, almost any asset, physical or virtual, can be traded on chain, with both parties secure in the knowledge that ownership is clear and uncontestable. This is the revolution that is coming, and Bitcoin’s new-found respectability is paving the way.
The Bitcoin ETH ruling is great — but it is just a taste of what is to come with RWA.
The Bitcoin ETF takes crypto assets and dresses them in the clothes of tradfi financial assets: shares in a fund, where the fund owns a bunch of bitcoin. The fund shares then trade on an exchange: it’s literally an Exchange Traded Fund.
But in the reverse direction, Mattereum will take real world assets like gold bars and apartments — tradfi assets if you will — and dresses them in the clothes of defi financial assets: NFTs and ERC20 fractional ownership tokens.
This two way traffic between the tradfi and defi world can only benefit both worlds. Defi needs the sheer volume of the real world assets. Tradfi desperately needs transparency, openness, efficiency, and above all innovation, to better finance the world’s need for goods and services.
As defi and tradfi learn how to work together we can build a new system with the best features of both.
