Fifteen years ago, Bitcoin only existed for a small subset of humanity obsessed with separating money from the state.
Seeing the country endorsing the monetization of this process, through the US Securities and Exchange Commission’s approval of a Bitcoin exchange-traded fund, is strange. Anarcho-capitalists may find it satisfying to watch the two worlds collide.
Similar products are already trading in markets across Canada and Europe, which US citizens can already access easily through brokerages such as Interactive Brokers and Charles Schwab as is one of the US spot ETFs. Except they didn’t really count.
There’s something surreal about the SEC finally capitulating to the fact that bitcoin is a real commodity on par with gold, copper, or crude oil, which the CFTC accidentally discovered years ago.
This is the case for US-listed spot Bitcoin ETFs on a conceptual level: fund managers, allocators, insurance and pension funds will seize the opportunity to add Bitcoin to their portfolios. Consider it their tax-efficient way to hedge their safe, boring baby boomer bets to benefit from cryptocurrencies undermining the very financial system they live by.
Except that no one in this scenario actually buys or uses Bitcoin. They buy shares in a fund that buys and holds bitcoin on their behalf.
Some legalese buried in some of the terms and conditions might translate to the fund owing the shareholder a slice of its assets under management proportional to the number of its shares, a far cry from the private keys that prove ownership of bitcoin (bitcoin is a bearer asset – whatever). He owns the keys and owns the coins in the eyes of the network).
Holders of ETFs will only benefit from exposure to their price. Contributors to spot bitcoin ETFs (and all other bitcoin investment products, spot or otherwise) cannot send their bitcoins to anyone, so they cannot use them as money.
This means that they will not actively contribute to the transaction fees for using the network.
Read more: No one is in crypto for the technology. We’re all here for the price
Arthur Hayes, former CEO of BitMEX, recently warned that if spot ETFs dry up in transaction fees in the long term, miners could suffer from block rewards alone. These rewards halve every four years or so until they run out completely sometime in the next century.
Storing value with Bitcoin has long been a use case for the asset, but spot ETF shareholders don’t store their value with Bitcoin either.
They store their value in the confidence that BlackRock or whoever issues the ETF can hold up their end of the deal — buying bitcoin and keeping it safe, lest the fund lose any right to claim it is backed by actual cryptocurrencies.
Contributors are on track to pay up to 0.20% in fees for this service. Grayscale’s GBTC was the preferred way to integrate Bitcoin into old-world wallets, but shares were non-redeemable and carried a 2% service fee. About 4% of the circulating supply of Bitcoin is in such products.
And here’s the truth of the matter: There’s no novelty in US-listed spot bitcoin ETFs beyond a race to the bottom for management fees. Investors see none of the benefits of actually owning and using Bitcoin – financial sovereignty and censorship resistance.
The years-long battle over spot ETFs is about making exposure to bitcoin as cheap and efficient as possible. Its open-ended nature avoids the annoying premium/discount problem that has plagued Grayscale, and a physically backed (spot) fund should track bitcoin much more closely than ETFs with synthetic exposure through futures, many of which are already based in the US.
Unfortunately, no one at the protocol level can prevent funds from converting Bitcoin into stocks. That’s the whole idea: anyone can use Bitcoin for absolutely anything, even traditional finance. The network will probably never stop you.
But as cryptocurrencies prepare to celebrate the BlackRock-branded ETF as if it were the predicted return of a celestial body, perhaps consolation is more appropriate.
If these spot ETFs are indeed successful, Bitcoin will be forcibly transformed on a large scale into a hollow version of itself — a risk token that gets circulated around spreadsheets and never used. sad.
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