Author of the book ‘Mastering Bitcoin’ and noted bitcoin advocate Andreas Antonopoulos believes that a Bitcoin ETF is imminent. However, he insists that the long-term implication of such fund will do more harm than good for the original cryptocurrency.
Intermediary Bitcoin ownership
Antonopoulos described an exchange traded fund(ETF) as a fund that has a custodian or a manager who creates a financial instrument that can be traded like a stock but in the actual sense of it, it isn’t a stock. So for a Bitcoin ETF, this fund is expected to hold Bitcoin, and then sell shares in the Bitcoin reserve that represent the price of Bitcoin.
This system of investment allows people to buy the eventual shares as ‘stocks’ through their regular brokers, and traded on the stock market. Practically, in this case the investors do not hold or own actual Bitcoins. They simply own shares of Bitcoins owned and held by the custodian. So essentially, it only provides opportunities for market practitioners to speculate on Bitcoin price without actually holding it.
Temporary gains, but Long-Term Pain
Antonopoulos acknowledges the sudden impact of ETF in situations where they have been applied in the past. There is usually an immediate surge in price as a result of such ETFs due to the fact that it opens up the market and makes it more accessible to investors. However, such situations exposes the market to manipulation by market makers as have been insinuated in the past.
Contrary to the popular perception of an ETF as a positive development for Bitcoin, probably due to the hope of an eventual price boom, Antonopoulos sees it as a terrible thing for the cryptocurrency. This comes from the long term expectations as to how an ETF will affect Bitcoin.
One of the major reasons why Antonopoulos thinks that an ETF is a bad idea for Bitcoin is the pseudo-centralization effect that it will introduce into the ecosystem. What this means is that investors who hold no keys will have no part to play in decision making processes within the ecosystem. Rather, their rights and powers contribute to what would become an enormous concentration of power in the hands of the custodians who hold the keys. In the long run, decision making processes within the ecosystem will lose its original democratization.