With the successful launch of 10 bitcoin ETFs, Wall Street has taken a close interest in the queen of cryptos. We can even think that the recent bull run is linked to the arrival of wolves on BTC. Is this a good or bad thing for bitcoin? How is the price of BTC likely to evolve with these new players?
Wall Street is getting closer and closer to bitcoin
The arrival of Wall Street in the bitcoin sector has two important consequences.
- The first is very negative for the long-term financial freedom that bitcoin offers.
- The second is rather positive in the short term for the rise in the price of bitcoin, as well as for the reduction of the volatility of its price.
Wall Street has finally entered bitcoin
Trading volumes have exploded during the first weeks.
Initially, this led to a selling pressure of around $1 billion from the bankrupt FTX estate and several billion dollars more from other holders of GBTC, who were finally able to exit this investment at the spot price rather than with the discount that weighed on their investment for years.
What we will lose
If the price of BTC can now soar, the fact remains that these performances have a price in terms of individual sovereignty.
It would indeed seem that Wall Street’s entry into Bitcoin, is actually quite bad for financial freedom, self-ownership, self-sovereignty and privacy.
It is even potentially bad for security due to layers of counterparty risks and especially custodian concentration risk (since most Bitcoin ETF sponsors use the same single custodian, Coinbase, for their ETFs).
Bitcoin offers a breakthrough in financial freedom. This progress lies in the ability to eliminate middlemen in financial transactions.
In the first sentence of the bitcoin white paper, Satoshi Nakamoto stated that bitcoin “ would allow online payments to be sent directly from one party to another without going through a financial institution.”
Will ETFs distract bitcoiners from their mission?
Here are the Bitcoin ETFs, which are presented as a substitute for holding Bitcoin keys.
However, this reintroduces into the mix, at a minimum, custodians, managers, market makers and brokers: a significant number of new intermediaries.
Unlike Satoshi’s main goal, it is simply not possible to send bitcoin ETF units to another party without going through a financial institution.
The units of the Bitcoin ETF are not even intended to be sent to another party. They are intended to be bought and sold to a Wall Street company through another Wall Street company.
ETFs are nothing more than the same financial structures that preceded Bitcoin and the same intermediaries, but this time, an asset that was specifically designed to operate without their intervention. ETFs offer none of the financial freedoms that bitcoin does.
BlackRock is not our friend
We can be pretty sure that the marketing efforts of the Wall Street titans who manage these ETFs won’t mention this fact.
BlackRock, for example, whose ETF has seen the largest net inflows so far, promotes its ETF on the basis of ease, convenience and quality.
The “ease” is justified by the use of your current broker, which is an intermediary. “Convenience” is touted as eliminating the logistical challenges, high fees, and tax complexities of “holding bitcoin directly,” which is frankly dubious.
“Quality” is touted as the integration between Coinbase and BlackRock which will “minimize tracking errors and expenses,” but there is no mention of the quality of directly holding the purest asset in the world, namely bitcoin itselfwhere there are no tracking errors and no holding expenses.
Wall Street disguises bitcoin
All this means that Wall Street discourages direct ownership of bitcoin and diminishes Satoshi’s primary reason for creating bitcoin.
Wall Street positions bitcoin only as an investment rather than as a bearer instrument or form of cash that can be used to make payments between two parties anywhere in the world.
Nonetheless, despite these drawbacks, overall it is a good thing for bitcoin.
Towards shitcoin ETFs?
Another unfortunate result is that Wall Street’s entry announces a new cycle of speculation and wealth destruction in other “crypto” investments.
The complexity of what bitcoin does and how it does it has proven in the past to be a barrier to people being able to determine what constitutes its real value and what all its imitations are.
Not only ETFs do not have the advantages of bitcoinbut it is a safe bet that we will one day seeETFs including other “cryptos”. BlackRock has already filed for a spot ETH ETF.
Although only Bitcoin ETFs have been approved so far, the altcoin market has not declined dramatically against BTC since then, as many maximalist bitcoiners hoped.
Wall Street has already legitimized and will continue to legitimize bitcoin in the minds of many. But Wall Street doesn’t really support bitcoin on principled grounds. They are there to make money, that is, dollars.
They are there to make dollars
It is likely that Wall Street tries to legitimize cryptocurrencieswell beyond bitcoin, which would only amplify the problem we saw in previous cycles where many people lost significant amounts of money in what turned out to be worthless projects.
The Initial Coin Offering bubble of 2017, which saw tens of thousands of projects raise money and then collapse, is in many ways an echo of the Wall Street dot-com bubble of the mid-1990s. 90, where the same thing happened around the hype and misinformation about what the internet was going to bring.
It’s still good news
On another side, Wall Street also has considerable advantages.
It is likely that he promotes a general increase in prices and reduces volatility. For people who are not ready to buy native bitcoins, ETFs make buying easier.
Behind the scenes, these ETFs buy real bitcoins, even if they do not give them to customers who buy the ETF shares. This volume of activity drives up bitcoin price and reduces volatilityas the size of the asset class becomes much larger.
Until now, bitcoin was an ugly duckling of Wall Street’s investment world. Essentially, Wall Street couldn’t and wouldn’t touch bitcoin. But all that has changed. With multi-billion dollar asset managers like BlackRock and Fidelity launching bitcoin ETFsand market makers like Goldman Sachs, Jane Street and J.P. Morgan who act as “authorized participants” in these ETFs, bitcoin is legitimized as an asset class in its own right, right in the heart of Wall Street.
This legitimization does not only concern the companies mentioned, but also numerous fund managers, family offices and licensed investment advisors from around the world!
The success of ETFs
Let’s take a step back and take a quick look at spot Bitcoin ETFs in the United States.
Since the launch of the eleven ETFs on January 11, the total trading volume amounted to over 40 billion dollars.
Furthermore, total net inflows since launch of Bitcoin ETFs exceed $1.6 billiondespite total net outflows of $6.1 billion for GBTC.
Will this success last?
Wall Street’s entry into bitcoin is synonymous with financialization. This means a lot of derivatives, leverage, hedging, speculation, of cash-settled BTC financial products and pressure on public bitcoin companies to focus on quarterly results.
What can we expect?
Wall Street is going to release too many paper bitcoin products. These will include products derived from bitcoin. Just like there were too many derivatives before the 2008 financial crisis.
We can expect that Wall Street offers mostly bad products, as usual. The 2008 financial crisis was largely due to concentration risk at AIG, the insurer of last resort for credit products such as credit default swaps and collateralized debt securities.
We may soon see bitcoin options, bitcoin-backed loans, interest-bearing bitcoin deposits, and everything that is complex, leveraged and risky and which distracts from the true core properties of bitcoin as a immaculate, stable, predictable currency.
Will Wall Street poison bitcoin?
Bitcoin is here, and it is here to stay. Only a few of the eleven Bitcoin ETFs will remain, and the majority of them will eventually throw in the towel or be bought outbut the size and legitimacy of the winners will be considerable.
The details of the impact of Wall Street’s adoption of bitcoin are yet to be determined, but the broad strokes are fairly predictable: Wall Street BTC will become widespread.
It’s a mixed blessing. It will deter and distract many people from holding bitcoins themselves, which is unfortunate for them. On the other hand, it will probably be a gateway to bitcoin for many more people, especially if it contributes to the appreciation and stability of the price, as is expected.
Wall Street won’t be able to resist the idea to “innovate” with new financial products around bitcoin.
This will also lead many people to hold items bearing the name “bitcoin” but which will not behave like bitcoins.
Bitcoin is resilient and thrives on well-paid stakeholders who only think of themselves and Wall Street is probably where the greatest concentration of such people and entities can be found. Will Wall Street adapt to Bitcoin? Or is it rather BTC that will have to adapt to the wolves? We will see.
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