March 27, 2024
Spot Bitcoin ETF Approval Risks 'Unbacked BTC' Surge
Bitcoin News

Spot Bitcoin ETF Approval Risks ‘Unbacked BTC’ Surge

The potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States has raised concerns about deviating from the original vision of Bitcoin and the concept of self-custody, according to Trezor’s Bitcoin analyst, Josef Tetek. He argues that spot Bitcoin ETFs, which track BTC prices by holding actual Bitcoin, move users away from self-custody, where individuals take full responsibility for holding private keys and assets.

Tetek emphasizes the potential introduction of systemic risk, suggesting that spot Bitcoin ETFs might appear safer on the surface than exchanges. He expresses worries about large quantities of Bitcoin being stored centrally, vulnerable to government seizure, drawing parallels with the 1930s gold confiscation in the United States.

“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?”

One critical issue highlighted by Tetek is that spot Bitcoin ETF holders may lack the option to withdraw the underlying asset. Instead, these assets are collectively held by the ETF, raising concerns about the unchecked issuance of “paper Bitcoin” not backed by actual Bitcoin, which has a capped supply of 21 million coins.

“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.”

Tetek’s concerns present a downside amid growing optimism in the market, with expectations that U.S. securities regulators could approve a spot BTC ETF in January 2024.

While some anticipate the positive impact of spot BTC ETFs, others share Tetek’s reservations. Arthur Hayes, co-founder of BitMEX, warns that if too successful, spot Bitcoin ETFs could “completely destroy” Bitcoin. Additionally, concerns arise about potential competition with centralized exchanges like Coinbase, as ETF fees are expected to be lower.

Mati Greenspan, founder of Quantum Economics, suggests that there is no direct conflict between self-custody and spot Bitcoin ETFs, as retail users can opt for self-custody. However, he asserts that there are zero advantages and numerous disadvantages for retail investors holding Bitcoin ETFs, advocating for directly holding Bitcoin instead. The debate surrounding spot Bitcoin ETFs highlights the ongoing tension between traditional financial instruments and the ethos of decentralized cryptocurrencies.

Image By vecstock

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