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Updated January 1st, 2024 at 10:44 IST

Will Bitcoin’s highly awaited ETF be a self-kill?

Hayes' warning comes ahead of an anticipated decision by the US Securities and Exchange Commission (SEC) on various pending spot Bitcoin ETF applications.

Anirudh Trivedi
Bitcoin
Bitcoin | Image:Unsplash
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Can Bitcoin die? Arthur Hayes, co-founder of the crypto exchange BitMEX, has issued a cautionary note against the potential proliferation of spot Bitcoin exchange-traded funds (ETFs). In a recent blog post, Hayes argued that the success of these ETFs could have catastrophic consequences for Bitcoin's existence. Hayes articulates that Bitcoin's intrinsic value lies in its ability to facilitate transactions, and in the fact that it "moves." However, he expressed concerns that spot Bitcoin ETFs are primarily designed to accumulate assets, likening them to "vacuum cleaners" that store these assets in a proverbial vault. 

“Blackrock, the world’s largest TradFi asset manager, is in the asset accumulation game. They vacuum up assets, store them in a metaphorical vault, issue a tradable security, and charge a management fee for their “hard” work,” Hayes wrote in the blog post. 

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According to Hayes, if ETF issuers amass all available Bitcoin and investors primarily engage with Bitcoin derivatives instead of holding the cryptocurrency themselves, transactional activity on the network could diminish with time. 

“Now that a handful of firms hold all the Bitcoin, and have no actual use for the Bitcoin blockchain, the coins never move again. The end result is miners turn off their machines as they can no longer pay for the energy required to run them. Bye-bye, Bitcoin!”

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Existential crisis 

Hayes believes that this scenario could result in miners abandoning their operations due to unsustainable energy costs, leading to the collapse of the Bitcoin network. 

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Image credit: Unsplash

“The death of Bitcoin then creates space for another crypto monetary network to grow in its place. This network could just be a reboot of Bitcoin or something different that is an improved adaptation of the original Bitcoin,” wrote in his blog post. 

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“Either way, the people will once again have a non-state-controlled monetary asset and financial system. Hopefully, the second time around, we will learn not to hand our private keys to the baldies.”

Hayes' warning comes ahead of an anticipated decision by the US Securities and Exchange Commission (SEC) on various pending spot Bitcoin ETF applications. Notable financial entities such as BlackRock, Grayscale, Bitwise, WisdomTree, Invesco, and several others await regulatory approval. 

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Why Can’t Bitcoin die?

There is not just one reason why Bitcoin ETFs cannot lead to the death of Bitcoin, however, Hayes’ caution should not be seen as a long-shot prediction but a wise advice to the community. Here are some of the reasons which exerts that Bitcoin is not going to die anytime soon. 

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Decentralised nature

Bitcoin's fundamental design as a decentralised currency makes it resilient against any single entity or financial instrument, like an ETF, exerting overwhelming control over its ecosystem.

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Bitcoin | Image credit: Unsplash

Even if Bitcoin ETF asset managers manage to hold a large portion of Bitcoins in their vaults, having control of the entire supply of Bitcoins is not feasibly possible. Bitcoin is not only a store of value but with recent developments such as BRC-20, it is finding its new applications. Layer-2 solutions like the Lightning Network, enhance Bitcoin's scalability and transaction efficiency, further solidifying its place in the digital economy.

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Bitcoin blockchain and community are decentralised in nature and expecting that the total supply of the token will be locked with ‘baldies’ can be stated as a long shot.

Global adoption

The widespread acceptance and adoption of Bitcoin across various sectors and countries ensure its continued relevance and usage, regardless of the success or failure of spot Bitcoin ETFs. 

Image credit: Unsplash

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Apart from that, the global community of developers, miners, and users committed to Bitcoin's principles provides a support system. This collective ethos would likely counteract any single force, such as a successful ETF, that might threaten Bitcoin's integrity.

The diversity of the Bitcoin use cases ensures that Bitcoin's value proposition remains multifaceted and not solely reliant on ETFs for validation or growth.

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Published December 25th, 2023 at 17:34 IST

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