Even worse for crypto than central exchanges


In recent weeks, traditional finance interest in crypto-based exchange-traded funds (ETFs) has surged. After the Securities and Exchange Commission objected to the initial filing, BlackRock filed a new application for a Bitcoin ETF on July 3. A week earlier, Fidelity led a string of investment firms in filing applications with the SEC for Bitcoin-based ETFs. Meanwhile, HSBC has become the first bank to offer Bitcoin (BTC) and Ether (ETH) ETFs to clients in Hong Kong.

In the context of Bitcoin, it is often the seemingly positive news that is detrimental in the longer term; and vice versa, short-term negative news often serves to bolster the current case for Bitcoin. A good example of the latter is the “Blocksize War” of 2017, when the Bitcoin community split into the large block camp that launched the Bitcoin Cash fork and the small block camp that implemented the Segregated Witness upgrade in Bitcoin.

While the short-term result was chaotic – with many Bitcoin critics wanting to dance on Bitcoin’s grave – it turned out to be one of the most important lessons about decentralized consensus and paved the way for the layered scaling via the Lightning Network where we enjoy Today.

For an example of good news turning negative, we don’t have to go far back in time. Until late 2022, FTX was the best example of crypto going mainstream, with its Superbowl ads, stadium naming rights, and glossy magazine articles. But in the end, FTX turned out to be a ticking time bomb that exploded in everyone’s face and set the industry’s legitimacy back by years.

And again, as things go, the seemingly bad news – FTX is crashing and losing a lot of money for its users – will turn positive in the long run, as people will take better care of their Bitcoin in the future, mitigating systemic risk. of major custodian blow-ups.

Dodge the fakes

As we saw with the implosion of FTX and subsequent market contagion, centralized exchanges were never the answer for everyday investors looking to capitalize on Bitcoin’s immense promise. Neither are ETFs. Bitcoin-linked ETFs are an even worse idea than centralized exchanges because there is no way to withdraw the underlying instrument, i.e. Bitcoin. This means that the holders will never be able to take advantage of Bitcoin’s most important feature: the ability to control their funds without having to trust anyone.

Related: Don’t be naive – BlackRock’s ETF will not bullish Bitcoin

There are also other dangers for the wider market. With ETFs, there is a risk that “paper Bitcoin,” or claims not backed by real Bitcoin, could distort the market and undermine Bitcoin monetary policy. Exchanges that have issued paper Bitcoin in the past – such as FTX – have been kept under control via withdrawal runs and eventually collapses, after which the bogus Bitcoin claims were wiped out along with the unfortunate exchanges.

That probably won’t be the case with ETFs. Without the ability to include the underlying asset, paper Bitcoin can be printed at will. If Bitcoin ETFs become the dominant way to invest in Bitcoin, it could very well lead to millions of paper Bitcoin flooding the market, depressing Bitcoin’s price.

With Bitcoin, holding it means owning it

In the context of Bitcoin, ownership is very closely related to control over the cryptographic keys associated with specific Bitcoin addresses. Now it may be true that someone can own Bitcoin in a legal sense without having direct control over the keys – as in owning an exchange account or holding an ETF stock – but that’s just not a good idea in the Bitcoin world .

Related: Gary Gensler hurts the little guys for Wall Street

Bitcoin’s digital nature, perfect portability and global liquidity make it particularly susceptible to embezzlement, theft or plain mismanagement. The only way to truly own Bitcoin is to control the keys.

Some may welcome a possible short-term price pump associated with an approval of a major Bitcoin ETF (such as BlackRock’s), but the long-term impact on Bitcoin adoption would likely be negative (including Bitcoin’s long-term price). The only adoption that really matters is self-preservation – everything else is a trap.

Joseph Tetek is a Bitcoin analyst for Trezor. A longtime Bitcoiner with a background in Austrian economics and political philosophy, he founded the Czech and Slovak Ludwig von Mises Institute in 2010. He is the author of two books, Bitcoin: separation of money and state And Enemies of the State, Friends of Freedom.

This article is for general information purposes and is not intended to and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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