Bitcoin ETFs Bring Mainstream Adoption to the U.S.
Bitcoin has officially entered the mainstream in the U.S. with the approval of 11 spot bitcoin exchange-traded funds (ETFs). These products, offered by major financial institutions such as BlackRock, Fidelity, and Bitwise, have already generated over $7 billion in cumulative trading volume within their first two days of trading.
The Risks of Wall Street’s Involvement
While this approval is a significant milestone for the crypto industry, it also comes with risks. Some long-time bitcoiners are concerned about the potential concentration of bitcoin ownership in the hands of a few institutions and changes in the governance of the bitcoin community.
A Single Point of Failure
A major concern is that the custodians holding the bitcoins backing the ETF shares are a single point of failure. Most issuers have chosen Coinbase as their custodian, with exceptions like VanEck (which chose Gemini) and Fidelity (which has its own custody product). Critics worry that government agencies could easily seize the bitcoins held by these custodians.
A New Type of Double-Spending Attack
The financialization of bitcoin through ETFs raises concerns about commingling, collateral substitution, and leverage on top of these assets. With ETFs, investors will hold IOUs instead of actual bitcoins, potentially compromising the essential properties of bitcoin such as decentralization and permissionless nature. There are worries that Wall Street firms could artificially inflate the supplies of bitcoin through these securities.
Governance Wars
Another concern is that ETF issuers may try to influence how the bitcoin protocol is maintained. If significant forks occur in the blockchain, ETF issuers may disregard them, leaving their ETFs with less valuable assets. However, experts believe that ETF issuers will have limited influence over protocol development since they won’t be actively involved in on-chain transactions.
Hot Take: Bitcoin ETFs Are a Temporary Fix
Despite the risks, bitcoin ETFs are seen as a temporary fix for mainstream adoption. As more people own bitcoin and understand its true nature, they will move away from ETFs and directly invest in the cryptocurrency. The younger generation, in particular, is expected to inherit wealth and choose to buy bitcoin instead of relying on intermediaries.
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