Bitcoin ETFs were never really a big deal
Fifteen years ago, Bitcoin was available only to a small subset of people who were obsessed with separating money from the state.
It’s strange to see the government supporting monetization of this process through the US Securities and Exchange Commission’s approval of a spot Bitcoin ETF. Anarcho-capitalists may even find it satisfying to watch two worlds collide.
Similar products already trade on markets in Canada and Europe, and U.S. citizens can easily access one of the U.S. spot ETFs through brokers such as Interactive Brokers and Charles Schwab. But they were never really counted.
There’s something surreal about the SEC finally revealing the fact that Bitcoin is a commodity on par with gold, copper, or crude oil, which the CFTC accidentally uncovered years ago.
At a conceptual level, this is the case for U.S.-listed spot bitcoin ETFs: Fund managers, allocators, insurance funds and pension funds will seize this moment to add bitcoin to their portfolios. Think of it as a tax-efficient way to hedge their safe, boring bets to potentially profit from crypto undermining the financial system they survive on.
But in this scenario, no one is actually buying or using Bitcoin. Technically, they are buying shares of a fund that buys and holds Bitcoin on their behalf.
Subject to certain terms and conditions, some lawyers may convert a portion of a shareholder’s assets under management into a fund by scaling them according to the number of shares; This is very different from private keys that prove ownership of that Bitcoin (Bitcoin is a bearer asset – no matter who it is). In the eyes of the network, the keys own the coins).
ETF holders will only benefit from exposure to its price. Shareholders of spot bitcoin ETFs (and all other bitcoin investment products, spot or otherwise) cannot send their bitcoins to anyone, so they cannot redeem them as currency.
This means that they will not actively contribute to the transaction fees associated with the use of the network.
Read more: Nobody is in crypto for the technology. We’re all here for the price
Former BitMEX CEO Athur Hayes recently warned that miners could struggle with block rewards alone if spot ETFs reduce transaction fees in the long run. These rewards are halved every four years until they are completely exhausted in the next century.
Storing value in bitcoin has long been a prominent use case for the asset, but spot ETF shareholders aren’t storing their value in bitcoin either.
They store their value in the trust that BlackRock, or whoever issues the ETF, can fulfill their part of the deal — buying bitcoin and keeping it safe so the fund doesn’t lose the right to claim it’s backed by actual crypto.
Shareholders are on track to pay as little as 0.20 percent for this service. Grayscale’s GBTC was the preferred method of incorporating Bitcoin into old-world portfolios, but the shares were non-redeemable and carried a 2% service fee. Approximately 4% of Bitcoin’s circulating supply is in such products.
Herein lies the truth: There is no innovation in U.S.-listed spot Bitcoin ETFs beyond a race to the bottom on management fees. Investors see none of the benefits of owning and using Bitcoin, such as financial sovereignty and censorship resistance.
The years-long fight over spot ETFs is all about making exposure to Bitcoin as cheap and efficient as possible. Their open-ended structure eliminates the pesky premium/discount problem that plagues Grayscale, and a physically backed (spot) fund would trade bitcoin much more effectively than ETFs with synthetic exposure via futures contracts, many of which are already available in the US. should be followed closely.
Unfortunately, no one at the protocol level can stop funds from staking Bitcoin. That’s the whole idea: Anyone can use Bitcoin for anything, even traditional finance. The network will probably never be able to stop you.
But as the cryptocurrency prepares to celebrate a BlackRock-branded spot ETF as if prophesying the return of a celestial body, condolences are perhaps in order.
If these spot ETFs are truly successful, Bitcoin will be largely forcibly turned into a hollow version of itself; It’s a symbol of risk that gets pushed into spreadsheets and is never used. Sad.
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