Potential approval of a spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States will trigger fundamental problems related to the original vision of Bitcoin by the anonymous creator Satoshi Nakamoto, according to one analyst.
The concept of a spot Bitcoin ETF — an investment product that tracks the price of BTC by holding Bitcoin — conflicts with the idea of self-custody, according to Josef Tětek, a Bitcoin analyst at the hardware crypto wallet firm Trezor.
Unlike a Bitcoin ETF, self-custodial crypto storage solutions allow users to own Bitcoin by taking full responsibility for holding the private key — or the actual assets.
“In principle, spot Bitcoin ETFs take people further from self-custody and potentially introduce a systemic risk, as ETFs will be safer on the surface than exchanges,” Tětek said in an interview with Cointelegraph.
One possible consequence of spot Bitcoin ETF approval could be that large quantities of BTC would be stored in central locations where the government could seize them, the analyst said, referring to a scenario seen with the confiscation of gold in the United States in the 1930s. Tětek added:
“And while a spot Bitcoin ETF would make exposure to Bitcoin price movements more accessible to individuals and institutions alike, simply buying Bitcoin through conventional means would offer the same exposure. Do we really need ETFs for this?”
Another significant issue with a spot Bitcoin ETF is that ETF holders will not have the option to withdraw the underlying asset. Instead, these assets are held in aggregate by the ETF itself, which raises the possibility of the unchecked issuance of “paper Bitcoin,” not supported by actual Bitcoin, the supply of which is capped at 21 million coins, Tětek noted. The analyst stated:
“The result could be the creation of millions of unbacked Bitcoin, which would distort genuine markets and depress the value of real Bitcoin — all while handing greater agency to the giants of centralized, traditional finance. The very antithesis of Satoshi’s original vision.”
Tětek’s remarks on self-custody versus spot Bitcoin ETFs flag a potential downside amid the growing optimism on the market, with various firms and analysts expecting U.S. securities regulators to approve a spot BTC ETF in January 2024.
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Not everyone has been optimistic about spot BTC ETFs, though. Arthur Hayes, co-founder of crypto exchange BitMEX, believes that spot BTC ETFs could “completely destroy” Bitcoin if they are too successful. If not Bitcoin, such ETFs will likely compete with centralized crypto exchanges like Coinbase, as ETF fees are expected to be lower than those on exchanges, according to some Bloomberg analysts.
According to Quantum Economics founder Mati Greenspan, there is no direct conflict between self-custody and spot Bitcoin ETFs because retail users will stick to self-custody.
“Personally speaking, I would never buy any sort of paper IOU forms of Bitcoin, but that’s because I have the option of self-custody,” Greenspan told Cointelegraph. “Most institutions don’t have that option,” he added.
“There are zero advantages and plenty of disadvantages for retail investors to hold Bitcoin ETFs. Way better to just hold Bitcoin,” Greenspan stated.
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