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While many traders eagerly await a potential exchange-traded fund (ETF), some of the most enthusiastic advocates of cryptocurrency are rather lukewarm about the prospect of such an instrument.
Twitter is flush with users like crypto entrepreneur Jonathan Hamel Publishing as an ETF would bring an "epic" influx of institutional capital to the ecosystem – that is, "billions" of dollars in new investments.
But if you talk to the first and the veteran technologists of the bitcoin community, you will feel a clamorous indifference, if you do not feel sick.
"I do not think an ETF will be a kind of powerful magnet," Pierre Rochard, founder of Brooklyn's Bitcoin Advisory LLC, told CoinDesk. "Demand will continue to be driven by sentiment, rather than by the availability of specific products."
Last week, the US Securities and Exchange postponed plans to reevaluate ETF proposals from financial institutions like VanEck and SolidX until February 27, 2019. This means that another two months of biting nails for those who believe that The ETF would be a huge thanks to bitcoin or to the savior of the cryptic market in general.
Yet, in reference to Grayscale's Bitcoin Investment Trust, launched in 2015, bitcoin analyst Nik Bhatia told CoinDesk:
"I do not see any additional ETFs that improve bitcoin liquidity any more than the GBTC does."
Although Bhatia said he would like an ETF approved by the regulator because it could increase public confidence in this new asset class, some crypt veterans have come to say that an ETF could actually be detrimental to the wider ecosystem. . For them, an ETF contradicts the vision of a peer-to-peer financial network fueled by self-managing assets.
"It's sort of a centralizing force and bitcoin's value proposition is decentralized, global," Lightning Labs developer Alex Woodworth told CoinDesk.
Centralizing force
For Bosworth, the biggest risk that an ETCO bitcoin presents is that it could incentivize institutions to work collectively to influence the ecosystem.
Referring to the New York deal thwarted in 2017, when the crypto companies planned to support unpopular bitcoin updates simultaneously despite public protests – Bosworth explained:
"We have seen companies holding other people's coins, talking as if they were holding those coins and taking actions that would decide, on behalf of their users, without even consulting them … We do not want the central parties out there to negotiate for the fundamental rules change in bitcoins. "
This is the same reason that bitcoin veteran Christopher Allen, the former chief architect of Blockstream, warns institutions that are working to create a regulated bitcoin ETF.
"The real reason they're doing this is that they can play financial games to make them a much higher interest rate than they would otherwise have," Allen told CoinDesk. "I think there are many implications in this: How do we educate people about trust and custody?"
Bhatia agrees that the industry is going to give priority to a "trusted custody model", but does not think that such institutional products will have a significant impact on encrypted traditionalists.
"People who currently hold their own bitcoins will not rush into ETF because they are not looking for the same things," he said.
Do not hold your breath
Other bitcoin veterans are worried about retail investors placing trust in the ability of an ETF to save the cryptocurrency prices they sink compared to the potential product it deserves.
If approved in the near future, Rochard said, he expects bitcoin ETFs to represent an even smaller percentage of the market than gold ETFs, which he believes represent less than 2% of the world's gold supply.
"We're talking about a very niche part of the market that would be interested in a bitcoin ETF product," Rochard said. "It would be even less than gold is used in an ETF because the total cost of liquidation of bitcoin is lower than that of physically settling gold".
Others say that any price boost may be short-lived.
During the CoinDesk Consensus: Invest in November, BlockTower Capital Investment Manager Ari Paul warned the public to remember how the addition of bitcoin futures stimulated short-term speculation much more than the institutional commitment. The price has stabilized in a few months.
"If an ETF was launched, it is not that there will suddenly be huge institutional flows, I think you would have gotten a big rally during the announcement," Paul said. "It's not because suddenly you get $ 50 million [in] the money of institutional investors is because the speculators evaluate it ".
And it's important to remember that every euphoria (or anxiety) on a bitcoin ETF is still academic.
On December 5th, SEC Commissioner Hester Peirce spoke to the audience during a fireside conversation in Washington, DC.hold your breath"Because a regulator-approved bitcoin ETF could still be years away." She added:
"I pay attention to people not to live or die when a crypto or bitcoin ETF is approved".
Operational questions
Even if an ETF were to be approved, bitcoins wonder how this structure – in which a fund owns the underlying assets and divides ownership into shares – addresses the idiosyncrasies of cryptocurrency.
For example, what if there is another fork in the network, like the one who created bitcoin money last year?
"They do [ETF custodians] return coins to people or suddenly become an index fund? "said Rochard," I do not think there's a precedent [from capital markets]because bitcoin does not have a legal identity and companies do. "
Allen said that issuers of the ETF should clarify how they store and account for their bitcoins, so that the products that represent these underlying assets are not continually lent to a process called rehypothecation. As Caitlin Long, co-founder of the Wyoming Blockchain Coalition, wrote in a Forbes column, rehypothecation is antithetical to the bitcoin ethos because there is a limited supply of bitcoins, 21 million at most.
As such, there is no way to save creditors if the borrowers owed more bitcoins than the issuer of the ETF actually owned.
"Basically, it's not very different from that of fractional reserves," Rochard said.
However, Gabor Gurbacs, director of digital asset strategy for VanEck, told CoinDesk that his company's proposal would imply cold storage, daily disclosures to defuse any concerns about re-installation and an indexed fund procedures manual approved by the regulator. to be followed in the case of a bitcoin fork.
"We intend to remain true to the core principles of bitcoin," said Gurbacs, adding that ETF holders would be primarily exposed to the Bitcoin Core-defined resource unless another chain became dominant and equally secure.
"I do not see any operational problems, I think we understood and we are waiting for the regulators to make a decision about it," he went on to explain.
Like many bitcoin supporters, Rochard said that anything that increases the overall liquidity of bitcoins, even if modestly, is a good thing.
On the other hand, he sympathized with the skeptical indifference that many technicians feel about financial institutions.
"It would be really unfortunate if people lost sight because the bitcoin has a value," said Rochard. "But it would be such a small part of the market, so there would be limited impact on this."
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