In recent weeks, there has been a surge in interest from traditional finance to cryptocurrency-based exchange-traded funds (ETFs). BlackRock filed a new application for a Bitcoin ETF on July 3 after the Securities and Exchange Commission objected to the original application. A week earlier, Fidelity had led a number of investment firms in filing a Bitcoin-based ETF with the SEC. Meanwhile, HSBC has become the first bank to offer Bitcoin (BTC) and Ether (ETH) ETFs to Hong Kong customers.
In the Bitcoin context, seemingly positive news is often detrimental in the long run. Vice versa, short-term negative news often helps strengthen Bitcoin’s ongoing claim. A good example of the latter is the 2017 “blocksize wars”. At this time, the Bitcoin community split into a large block faction that launched the Bitcoin Cash fork and a smaller faction that implemented Bitcoin’s isolated monitoring upgrade.
The results have been chaotic in the short term as many Bitcoin critics are trying to dance on the Bitcoin grave, but this is one of the most important lessons about decentralized consensus. has been proven, paving the way for the hierarchical scaling we enjoy over the Lightning Network. today.
You don’t have to go back in time for examples of good news turning negative. Until late 2022, FTX was a prime example of cryptocurrency going mainstream, with Super Bowl ads, stadium naming rights, and luxury magazine features. Ultimately, though, FTX turned out to be a ticking time bomb that exploded before everyone’s eyes and set the industry’s legitimacy back for years.
And also, as the story goes, the seemingly bad news of FTX collapsing and losing a lot of money to its users is that people will have better control over their bitcoins in the future, limiting systemic risk. So in the long run it will be positive.
As we saw with the FTX crash and subsequent market contagion, centralized exchanges were never the answer for everyday investors looking to profit from Bitcoin’s immense promise. Neither are ETFs. A Bitcoin-linked ETF is an even worse idea than a centralized exchange, as there is zero chance of withdrawing the underlying Bitcoin. This means that holders will never be able to take advantage of Bitcoin’s most important feature: the ability to manage their own funds without having to trust anyone.
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There are other dangers for the broader market as well. ETFs run the risk of “paper Bitcoin,” claims that are not backed by actual Bitcoin, distorting the market and undermining Bitcoin’s monetary policy itself. Exchanges that issued paper Bitcoin in the past (such as FTX) continued to be held back by withdrawal runs and eventual collapses, after which bogus Bitcoin claims were wiped out along with the ill-fated exchanges.
That’s probably not the case with ETFs. Paper Bitcoins can be freely printed without the possibility of withdrawing the underlying asset. If bitcoin ETFs become the primary method of investing in bitcoin, there is a good chance that millions of paper bitcoins will flood the market and keep bitcoin prices in check.
In Bitcoin, holding it means owning it
In the Bitcoin context, ownership is very closely related to control of cryptographic keys associated with a particular Bitcoin address. While it may be true that someone can own Bitcoin in a legal sense without having direct control over the keys, such as if they own an exchange account or hold ETF shares, That’s never a good idea in the Bitcoin world.
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Bitcoin’s digital nature, perfect portability, and global liquidity make it particularly susceptible to embezzlement, theft, or just basic mismanagement. The only way to truly own Bitcoin is to manage your keys.
While some may welcome the potential for short-term price spikes associated with the approval of major Bitcoin ETFs (such as BlackRock), the long-term impact on Bitcoin adoption is likely including) is likely to be negative. Adoption that actually matters includes self-custody. Anything else is a trap.
Joseph Tetec Bitcoin analyst at Trezor. A long-time bitcoiner with a background in Austrian economics and political philosophy, he founded the Ludwig von Mises Institute in Czech and Slovakia in 2010. He is the author of his two books. Bitcoin: Separation of Money and State and Enemy of the State, Friend of Liberty.
This article is for general informational purposes and is not intended, nor should it be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views or opinions of Cointelegraph.
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