Recently the biggest investment/portfolio management company in the world, BlackRock, filed for a bitcoin spot ETF. This application was submitted amidst SEC's scrutiny of major crypto exchanges and cryptocurrencies. The news of BlackRock's Bitcoin ETF application and those of other banks across Europe has sparked some form of excitement in the crypto community.
In this period we've seen Bitcoin move up by 12%. Many attribute this move to the news but nothing has been approved yet. BlackRock awaits SEC's approval. Now, it is also worth mentioning that other Bitcoin ETFs have been turned down in the past, however, BlackRock has a strong approval rate for its ETFs and many believe this new application will pull through.
Now, you may ask, "what is an ETF?" For someone with little or no financial knowledge this might sound strange to you. Before now I was only excited by the prospect of more institutional money coming into the crypto market, without knowing what it implied. With a little research I have been able to gather sufficient information about the topic which I will be sharing with you shortly.
So an ETF (Exchange Traded Funds) is a financial product traded in the stock market which mirrors the index of a certain asset class or commodity. For example, rather than buying the stock of different food companies, an individual can buy an ETF that has includes all food companies' stock he or she wants to purchase. This is way the individual is investing in these companies without having to own their stock directly. It is cheaper than purchasing stocks inidvidually and it is a way of diversifying the investor's portfolio.
A bitcoin spot ETF is another way of buying bitcoin without owning it directly. So in the case of BlackRock's Bitcoin ETF coinbase will serve as custodians of the bitcoin which would be kept in a cold wallet. Shares are then issued against the stored Bitcoin. These shares are traded in the stock market, mirroring the price of bitcoin.
"Why not just buy bitcoin?"
Well, let's start by addressing the elephant in the room: the government and its regulations/policies. Bitcoin ETF gives legitimacy to bitcoin and allows people who would ordinarily be restricted by law from holding bitcoin to participate in this market. The second reason is to mitigate the risk of holding bitcoin. Most people do not want to be bothered with the responsibility of storing and protecting their digital currencies, which in itself is a big problem.
Not your key, not your crypto.
Basically anyone buying a Bitcoin ETF is simply transferring ownership to an institution for a piece of paper. This is bad for the bitcoin ecosystem simply because it leads to centralisation of power which allows these centralized entities to dictate how the network operates.
The whole point of decentralized finance is to give people ownership and with that comes active participation in the network's governance and coin distribution. This is why distribution is key in a decentralized network because it strengths the network and mitigates the chances of a one-point attack(s)(which is very achievable when the resources of the network are colonized by a very few people)
Do people care?
It all depends on which side of the divide you belong to. To the vast majority, institutional investment is a sign of progress and development. This indirectly means more money in the space and that unfortunately is what most people care about. As long as bitcoin remains a speculative asset, most people will hold it for its future value which they will exchange for fiat.
For the very few who care about the integrity of the Bitcoin networks and the ethos of decentralisation the news about BlackRock's Bitcoin ETF is a sad one. It shows that the crypto space has/is been taken over by institutional investors. However, I will argue that this has always been the case, and institutional investors will continue to grow influence and strength.
On the plus side, these new developments in the crypto space will eliminate the uncertainty around cryptocurrency in terms of acceptance and regulations. Also, the world often follows the lead of the United States, so it is not wrong to think that other countries would proceed to making favourable crypto policies if America embraces Bitcoin fully by accepted BlackRock's ETF proposal.
I am looking forward to an interesting time in the crypto space. It seems the bull run is about start As a user of this technology, my goal is to leverage the opportunities this space affords. There is no denying that crypto has facilitated one of the major wealth distributions in certain times. It might not be doing this as initial intended, but we cannot deny its impact.
