"Your thoughts on the Bitcoin ETF and its effect on Bitcoin?"
"What happens next to Bitcoin?"
I got four or five questions on this topic.
It's a very hot topic right now.
First of all, what is an ETF?
An ETF is an exchange-traded fund.
An exchange-traded fund is a fund that usually has a custodian or manager.
This custodian / manager creates a special financial instrument...
that can be traded like a stock, but isn't a stock.
In this particular case, when we're talking about Bitcoin ETFs, what we're talking about
is a fund that holds bitcoin and then sells shares in this bitcoin reserve, which represent
the price of bitcoin as a stock that people can buy through their regular brokerage account.
It is traded on the stock market.
The idea here is to take a reserve of bitcoins and then make them trade-able instruments
that can be traded on traditional markets like stocks.
This is a custodial reserve system, where the custodian holds the actual bitcoin,
and what you're getting is a share in their fund -- not bitcoin.
It allows traditional / institutional investors to dabble in the bitcoin price, speculate on bitcoin,
without actually holding bitcoin or having to open an exchange account and deal with complex things
like keys, addresses, hardware tokens, and all of those things.
Everybody is so excited about ETFs because we've seen in other markets that when an ETF becomes available,
as we saw in gold, the price really increases dramatically.
Suddenly, that commodity becomes available to a lot more investors and these investors pile on.
But the other side of it is that there's always these claims that the commodities markets
are heavily manipulated.
Opening up these exchange-traded instruments only increases the ability of institutional investors
(especially large market makers) to manipulate the prices of commodities.
Not just in the market where it is traded as an ETF, but more broadly.
If you have a gold ETF and people can trade that,
then big market players can manipulate the price of gold worldwide, not just in the ETF.
It's a worldwide liquid market.
I'm going to burst your bubble.
I know a lot of people really want to see an ETF happen because "to the moon and lambos!"
But I think it is a terrible idea. I still think it is going to happen, I just think it is a terrible idea.
I'm actually against ETFs.
I think a Bitcoin ETF is going to be damaging to the ecosystem.
Here's why: a Bitcoin ETF [will be] a very large custodial holder of bitcoin.
That large custodial holder of bitcoin will hold bitcoin on behalf of these shareholders
and give them a traded share in that bitcoin.
But they don't give the owners of the ETF [instruments] any of the responsibilities and rights...
that a key holder of bitcoin has.
As someone who holds keys to bitcoin, I have more rights and responsibilities than someone
who is simply trading in an exchange or has an exchange-traded fund.
You see, I can do things like: use my bitcoin to "vote" [by] choosing which exchanges to send my bitcoin to,
or if I [even] want to send it to an exchange.
I can choose to pick up fork coins because I have the original keys.
If there is ever [another] fork debate, which is very likely to happen again in any cryptocurrency,
the fund that controls that bitcoin now has a very large voice.
Their shareholders don't, they don't get to choose which fork the fund is going to follow in a Bitcoin debate.
Maybe the fund follows both, maybe it gives them some of their bitcoin from the other fork.
We already saw that level of influence. It occurred during the August 1st fork...
and the user-activated soft fork (UASF) scaling debate; Bitcoin Cash, Bitcoin Unlimited, Bitcoin XT...
all of that scaling debate with all of these fork coins that were available
and the various clients that supported them.
We saw that large custodial exchanges had a very strong voice in the ecosystem.
They were able to decide if they were going to support or not support [a fork] on behalf
of ten million customers.
Essentially, moving opinion on a very large amount of currency.
An ETF will do that; it will do that on an even bigger scale.
It will give institutional players access to "bitcoin," but it won't give them a voice
in the consensus and governance of Bitcoin.
That [voice] will be held by a centralised fund manager.
That centralised fund manager will "speak on behalf" of all of the people who have that exposure...
to the ETF, because [the manager] actually holds the keys to the bitcoin.
That is a very bad thing.
It's not going to be the end of Bitcoin, it's just going to cause manipulation of the prices.
It is going to cause manipulation of the debates about scaling decisions, and if there are forks
it is going to give these parties a very large determining voice in forks.
Eventually you're going to see them split off and form their own corporate version of Bitcoin.
Let me give you a simple example: there's a new change being proposed for the Bitcoin ecosystem
that allows for completely anonymous, confidential transactions...
with encrypted values, senders, and recipients.
This change is being proposed as a soft fork. Does the ETF manager adopt the soft fork or not?
Well, they have a big problem.
If the authorities are really pushing hard against anonymous / private Bitcoin,
they may feel obliged to not adopt that change.
That means a hell of a lot of bitcoin is floating around which doesn't have privacy or anonymity protections,
because the custodian of that bitcoin hasn't adopted that change.
Effectively you now have two markets for bitcoin: private bitcoin and not-so-private bitcoin.
These are the kinds of problems that happen with an ETF.
ETFs fundamentally violate 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.
Your keys? Your bitcoin. Not your keys? Not your bitcoin.
An ETF is a multi-billionaire dollar "not your keys, not your bitcoin" vehicle.
That's why I am against it. I wouldn't buy any.
But it is going to happen anyway, because there is enormous market appetite...
and very little technical knowledge.
Institutional investors simply can't, at the moment, hold bitcoin directly.
Eventually, I think it's going to create two categories of institutional investors:
those who have the technical know-how to actually hold real bitcoin, gain all of the advantages of that,
and have real financial independence; versus institutional investors who don't have technical abilities
and therefore always use an intermediary.
Very much like in the current Bitcoin ecosystem, where you have users who hold their own keys
and users who have a custodian exchange wallet and are effectively second-tier Bitcoin users
(if they're even Bitcoin users at all).