According to Pascal Gauthier, Chairman and CEO of Ledger, Bitcoin ETFs expose investors to price fluctuations but not to the financial ownership and sovereignty that distinguish cryptocurrencies from traditional financial assets.
According to trading volume and flow indicators, newly authorized U.S. bitcoin ETFs have had remarkably successful launches in recent weeks. But these ETFs are unrelated to the real purpose of Bitcoin, which is to enable peer-to-peer transactions without the need for middlemen.
Investors in Bitcoin ETFs only gain exposure to the cryptocurrency’s price. The asset is never theirs. The fundamental idea of Bitcoin, which is to provide anyone the ability to experience financial ownership and sovereignty, is not advantageous to ETF members. When Satoshi Nakamoto, the unknown creator of Bitcoin, wrote the white paper fifteen years ago, he had this exact goal in mind.
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The primary issue with Bitcoin ETFs is that they are nothing more than a replication of our antiquated financial system, which is based on antiquated technology. Bitcoin ETFs bring back counterparty risks, which have supported finance for many years, by depending on middlemen. Consider Silicon Valley Bank or FTX, and more recently, Lehman Brothers. These are only a few instances of how established players have mismanaged the assets of their clients, quickly depleting billions of dollars.
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Only 9% of Americans are currently satisfied with this broken, outdated system; cryptocurrency is the way out. Investors in Bitcoin ETFs face counterparty risks in addition to being restricted by the U.S.-centric financial system, despite the fact that the fundamental feature of cryptocurrency is its ability to allow anybody to access a permissionless network and get access to an unmatched degree of decentralization.
ETFs operate within boundaries, in contrast to the permissionless nature of cryptocurrency, marking a stark difference between the two.
Crucially, investors in Bitcoin ETFs do not hold what is most important in cryptocurrency: a “private key,” or a code that is secret and algorithmically produced and mathematically verifies that users are the only owners of their digital tokens. The only way to engage with the cryptocurrency world, own Bitcoin, participate in decentralized finance, and use decentralized apps with freedom and ownership is to possess these keys. The future of the Internet and finance both have private keys as access points. That is not something that ETFs can offer.
Not only do cryptocurrency’s benefits seem contradictory, but Bitcoin ETFs cost more than the sovereign option of safe self-custody. By using Bitcoin ETFs, investors can avoid owning the underlying asset by paying fees ranging from 0.2% to 1.5%. Moreover, business participants require protection just as much as people embracing cryptocurrency. In order to prevent catastrophes akin to those caused by FTX, financial intermediaries involved in ETFs and accountable for protecting their clients’ assets must implement customized security and governance frameworks.
ETF Advocacy
Does this imply that Bitcoin ETFs are detrimental to the cryptocurrency space? Not at all. Though they stray from cryptocurrency’s declared objective, these conventional financial products will benefit Bitcoin in a number of ways.
First off, Bitcoin ETFs have the ability to significantly increase Bitcoin’s popularity in addition to exposing a new wave of investors to the cryptocurrency space. Indeed, the abundance of Bitcoin ETF commercials in the United States indicates that ETFs are the most effective marketing vehicles ever developed for Bitcoin! Furthermore, it will be more difficult for critics to discount Bitcoin as a tool for illegal activity given its acceptance into the most influential sectors of the financial system. Fiat financial systems globally, for centuries, continue to fall victim to bad actors through internal governing (including monocracies, aristocracies and oligarchies) agency corruption and unrelenting international criminal organizations.
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Second, please be aware that, similar to how centralized exchanges performed in previous years, Bitcoin ETFs will inevitably act as entry points to the promised land of cryptocurrency—the land of self-custody. It’s possible that a positive feedback loop will occur in which millions of people discover the advantages of digital ownership, become exposed to Bitcoin through ETFs, and ultimately choose to pursue true self-sovereignty. Interestingly, the approval of the first gold ETFs in 2004 did not impede private ownership of gold; on the contrary, it helped to popularize it.
Although they are just window dressing, Bitcoin ETFs are real and should be used as a first step toward the real promise of cryptocurrency ownership and sovereignty.
The future of Bitcoin isn’t to become a speculative asset that is only kept in investment vehicles similar to ETFs that regular investors would be exposed to, despite what the skeptics would have you believe. Rather, it represents a paradigm shift that has the potential to completely rewrite the laws governing digital ownership and value exchange, much like how the internet changed information exchange for billions of people.
Currently, the vast potential of cryptocurrency and its myriad of applications are just starting to be understood, much like the early underestimation of the internet’s capabilities in the late 1990s. Such a transformative revolution is a long-term endeavor, not a quick race. Bitcoin ETFs represent merely one milestone in the extensive path toward achieving financial autonomy through cryptocurrency. It is only with the genuine autonomy of mainstream users over their assets that the full promise of cryptocurrency can be unlocked.
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