Outspoken bitcoin proponent and author Andreas Antonopoulos believes that it is only a matter of time before we see the introduction of crypto-backed ETFs (exchange-traded funds). However, unlike most crypto advocates, who are banking on the bitcoin ETF to revitalize the whole market, he is skeptical of the idea and especially in the long term.
Speaking to CCN, Mr. Antonopoulos listed numerous drawbacks of a bitcoin ETF but ultimately it boils down to decentralization, a core principle in the crypto ecosystem. An ETF of bitcoin, ethereum or any other digital asset leads to pseudo decentralization, which is damaging to the crypto market over an extended period of time. While this may sound confusing, let us elaborate.
An ETF, according to Antonopoulos, is a fund that employs a custodian or a manager to create a financial instrument that trades like a stock but is not actually a stock. In the case of bitcoin ETF, investors would not hold any actual BTC but rather own shares of bitcoins that are owned by the custodian. This would create an opportunity to speculate on BTC price without actually holding any of it.
This leads to the fact that investors do not hold any keys and thus cannot be a part of the decision making process. Instead, the rights and power, stemming from their investment would be aggregated by the custodians, holding the keys. Such a huge concentration of power might potentially be harmful and undermine the basic principles of democracy.
According to the crypto expert, “ETFs fundamentally violates the underlying principle of peer-to-peer money, where each user is not operating through a custodian but has direct control of their money because they have direct control of their keys.“
Nonetheless, Antonopoulos firmly believes that bitcoin ETF is inevitable. This is mainly due to big institutional investors lacking knowledge about the emerging digital asset class. Holding actual bitcoin for them is still quite complicated but their desire to participate in the crypto market will eventually persuade the US Securities and Exchange Commission (SEC) to approve one of a number of pending bitcoin ETF applications. Crypto aficionados worldwide are eagerly awaiting the SEC ruling VanEck/SolidX proposal.
Author of the book “Mastering Bitcoin” foresees that bitcoin ETF will create two groups of institutional investors. Those with a technical knowledge to own actual units of BTC and those relying on intermediaries such as ETFs and futures contracts. It seems that institutions are leaning towards the second approach, which is quite understandable, considering all the bad press on cryptocurrencies due to concerns like volatility, fraud and high-profile hacks. A financial instrument, approved by the SEC, undoubtedly feels like a safer investment.
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I have been following the crypto markets since mid 2017, just in time to witness the incredible surge of the digital asset industry. Fascinated by the potential of blockchain technology I’ve started to dig deeper and that’s how I ended up meeting the Toshi Times team. I hold a Political Science degree, therefore the crypto regulation development is particularly interesting for me. I’m also heavily involved with music, running my own label, a YouTube channel and working with distribution. People call blockchain the ‘Fourth Industrial Revolution’ and I believe it will change our daily lives in the coming years and we will have the front row seats to witness it.