The world of cryptocurrencies is constantly evolving, and with the emergence of new financial products such as exchange-traded funds (ETFs), heated debates about their impact on assets such as Bitcoin have arisen.
So, Arthur Hayes, the former CEO of BitMEX, recently reopened the debate by expressing concerns about the potential impact of ETFs on Bitcoin in a recent article on his blog :
“Imagine a future where the largest Western and Chinese asset managers hold all the Bitcoin in circulation. This happens organically as people confuse a financial asset with a store of value. Out of confusion and laziness, people will buy derivatives Bitcoin ETF rather than buying and holding Bitcoin in specific wallets. Once a handful of companies hold all (or almost all) Bitcoins and they no longer have any real use for the Bitcoin blockchain, the coins will never move again. The end result will be that miners will eventually turn off their machines because they can no longer pay for the energy needed to run them. Goodbye Bitcoin!
This article explores the arguments made by some experts regarding the potential threat that ETFs pose to the integrity and decentralized nature of Bitcoin.
The problem of concentration of assets among a small number
Critics, like Hayes, point out that Bitcoin ETFs could concentrate assets in the hands of a few entities. Indeed, whether it is Grayscale or BlackRock, financial institutions that wish to create ETFs represent financial tycoons. These are companies worth billions of dollars and which could well (financially speaking) own a large part of the existing bitcoins.
This goes against Bitcoin's ideal of decentralization, which is based on equitable distribution of digital currency.
A drastic decrease in transactions on the network.
Another major argument is that Bitcoin ETFs can create a disjuncture between actually holding Bitcoin and speculating on its derivatives. If investors favor derivatives rather than owning Bitcoin directly, this could lead to a reduction in the number of transactions on the network, thus compromising its activity and dynamism. In fact, with fewer transactions on the network, this inevitably means less transaction fees and therefore potentially, a reduction in income for miners. The latter would no longer be in such high demand to continue their activities.
Un impact on network security:
The fact that miners are paid less may have adverse consequences on the functioning of Bitcoin. If this happens, miners could lose their financial incentive, leading to a decrease in the number of validated transactions on the network. This potential threat could compromise the security of the Bitcoin network. The success and the dominance of Bitcoin on other networks also and above all depends on the robustness and reliability of the network. If this is compromised, demand for the asset could decrease...
The importance of owning your own bitcoins
One of the key arguments in favor of directly owning Bitcoin is full control of the asset. By actually owning bitcoins, the investor eliminates the risks associated with reliance on third parties. Unlike ETFs, which are managed by external entities and which are only virtual versions of bitcoin, direct ownership provides total autonomy over the management and security of assets.
By owning bitcoins in a wallet, you preserve your sovereignty and can continue to carry out transactions without an intermediary. The opposite happens with financial derivative products like Bitcoin ETFs.
Final word
While some see ETFs as an opportunity to democratize access to Bitcoin, others, like Arthur Hayes, warn of the potential negative consequences of their massive success.
The impending decision on applications for approval of Bitcoin ETFs will likely provide important answers to these concerns, thereby guiding the future of Bitcoin and its role in the global financial landscape. However, it is essential to understand that owning bitcoin in a custodial wallet remains the ultimate method of preserving your financial sovereignty.
If Bitcoin simply becomes a financial asset controlled by institutions, it will lose its reason for existence. Let us remember that the great role of bitcoin is to allow all individuals to have a financial asset and a financial system not controlled by the State or financial institutions.
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