Could the US Bitcoin ETF Pose Risks to Bitcoin?

On 22 December 2023, Arthur Hayes, the co-founder of BitMEX, conveyed his perspectives in a blog entry regarding the possible launch of a spot Bitcoin ETF in the US and its consequences for Bitcoin.

Hayes’ examination delves into the essential distinctions between Bitcoin and conventional monetary assets, emphasizing the distinct existential threats Bitcoin encounters within the realm of traditional finance (TradFi) asset management.

He began by observing that the US political establishment may find a spot Bitcoin ETF more acceptable following the submission of applications by traditional finance entities on the East Coast.

In a lighthearted manner, he remarked that the Winklevoss twins, who were early advocates for a Bitcoin ETF, might have had greater success with their application had they aligned more closely with the conventional Wall Street persona.

The crux of Hayes’ argument centers on the intrinsic nature of Bitcoin in contrast to other monetary assets.

He asserts that unlike gold or fiat currency, which have a physical presence and are subject to natural laws, Bitcoin’s existence relies on its activity within the network.

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He highlighted that Bitcoin is the first monetary asset in human history that only exists if it is actively utilized, noting that this is especially pertinent after 2140 when Bitcoin block rewards will cease, and miners will depend solely on transaction fees for revenue.

According to Hayes, if Bitcoin stops moving, miners will struggle to cover the energy expenses necessary for network security, resulting in the network’s failure and Bitcoin’s extinction.

Hayes voiced apprehension regarding the potential influence of large TradFi asset managers such as Blackrock entering the Bitcoin market.

In his blog post, he explained that these firms generally gather assets, store them, and issue tradable securities without actively utilizing the underlying assets.

He believes that if these firms, along with significant Western and Chinese asset managers, were to hold all Bitcoin in circulation, the resulting stagnation could lead to the network’s downfall, and this situation might arise as individuals choose Bitcoin ETF derivatives over purchasing and holding Bitcoin in self-custodial wallets, confusing a financial asset for a store of value.

Hayes stated:

“Fundamentally, if ETFs managed by TradFi asset managers are too successful, they will completely destroy Bitcoin. This prediction is based on an important subtle yet profound difference between Bitcoin and every other monetary instrument humanity has ever used.”

Interestingly, Hayes perceives a poetic dimension to this potential scenario. He notes that if Bitcoin transforms into another state-controlled financial asset and perishes due to lack of usage, it could pave the way for a new crypto monetary network to arise.

According to Hayes, this emerging network could either be a reboot of Bitcoin or an enhanced version, providing individuals with a non-state-controlled monetary asset and financial system.

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Hayes concluded by underscoring the significance of choice amid ongoing fiat debasement.

He distinguished between trading financial assets to acquire more fiat and safeguarding wealth in energy terms through a financial system independent of state control.

For the latter, he recommended purchasing Bitcoin and utilizing self-custodial wallets instead of depending on centralized exchanges and ETFs.

Disclaimer: The information provided is not trading advice. Bitcoinworld.co.in holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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