Inevitable Bitcoin ETF Will Do More Harm Than Good: Andreas Antonopoulos
Prominent bitcoin advocate and author Andreas Antonopoulos believes that a crypto-backed exchange-traded fund (ETF) is inevitable, but will ultimately do more harm than good for peer-to-peer money. According to this view, proponents of virtual currency should stop debating whether regulators will approve a bitcoin ETF and start considering the long-term implications of securitization.
Although there are many reasons why Antonopoulos rejects the idea of a bitcoin ETF, the core of his argument stems from the underlying principle of decentralization. A bitcoin ETF, while inevitable in his view, induces pseudo-centralization that could have negative effects on the market’s long-term health.
“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,” Antonopoulos says, as quoted by CCN.
An ETF would concentrate influence and decision-making power in the hands of the custodians, who hold bitcoin keys on behalf of their investors (under an ETF model, investors hold no keys and have no role in the ecosystem).
While crypto purists have conveyed similar concerns, most investors are preoccupied with what regulators think the bitcoin market should look like for securitization to be granted. The U.S. Securities and Exchange Commission (SEC) believes the bitcoin market lacks the liquidity, size and manipulation constraints needed for securitization. To be fair, their judgment has been applied to funds that purport to track bitcoin futures as opposed to physical units of the digital currency. A recent application by VanEck and SolidX attempts to overcome these issues by tracking underlying bitcoin and insuring the fund against loss or theft. The SEC is expected to deliver its ruling on the VanEck/SolidX fund later this month.
Intermediary vs. Real Investment
In Antonopoulos’ view, the eventual passing of a bitcoin ETF will create two classes of institutional investors: those with the technical prowess to actually own physical units of bitcoin and those who depend solely on intermediaries like futures and ETFs.
At the moment, it appears that institutional demand is pivoting toward intermediaries, with banks, hedge funds and day traders gravitating toward bitcoin futures and other indirect investments. Several fund managers ranging from ProShares to Direxion and up to the Winklevoss brothers, who own and manage the Gemini Exchange, are pushing hard to make bitcoin ETFs a reality. This is where much of the institutional debate lingers.
The first wave of institutionalization via bitcoin futures appear to have had mixed results. On the one hand, the futures market has contributed to a sharp drop in bitcoin’s underlying volatility. On the other hand, it gave traders the power to short BTC with relative ease, which many believe has actually been responsible for bitcoin’s decline since December. To be sure, futures have probably played a very minor role in the bitcoin price due to underlying liquidity constraints in the market. There simply aren’t enough futures trades being placed to cause the earth-moving collapse in bitcoin’s price over the past eight months. That said, there’s no going around the fact that short positions have dominated the futures market since launch. Case in point: CME’s bitcoin futures contract recently recorded its smallest-ever bearish position at -1,266 contracts. That’s still a net short position.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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