Bitcoin Q&A: Why I’m against ETFs

“Your thoughts on the Bitcoin ETF
and its effect on Bitcoin?” “What happens next to Bitcoin?” I got four or five questions on this topic. It’s a very hot topic right now. First of all, what is an ETF? An ETF is an exchange-traded fund. An exchange-traded fund is a fund that
usually has a custodian or manager. This custodian / manager creates
a special financial instrument… that can be traded like a stock, but isn’t a stock. In this particular case, when we’re talking
about Bitcoin ETFs, what we’re talking about is a fund that holds bitcoin and then sells
shares in this bitcoin reserve, which represent the price of bitcoin as a stock that people
can buy through their regular brokerage account. It is traded on the stock market. The idea here is to take a reserve of bitcoins
and then make them trade-able instruments that can be traded on traditional markets like stocks. This is a custodial reserve system, where
the custodian holds the actual bitcoin, and what you’re getting is a share
in their fund — not bitcoin. It allows traditional / institutional investors to
dabble in the bitcoin price, speculate on bitcoin, without actually holding bitcoin or having to open
an exchange account and deal with complex things like keys, addresses, hardware
tokens, and all of those things. Everybody is so excited about ETFs because we’ve seen
in other markets that when an ETF becomes available, as we saw in gold, the price
really increases dramatically. Suddenly, that commodity becomes available to
a lot more investors and these investors pile on. But the other side of it is that there’s always
these claims that the commodities markets are heavily manipulated. Opening up these exchange-traded instruments
only increases the ability of institutional investors (especially large market makers)
to manipulate the prices of commodities. Not just in the market where it is
traded as an ETF, but more broadly. If you have a gold ETF and people can trade that, then big market players can manipulate
the price of gold worldwide, not just in the ETF. It’s a worldwide liquid market. I’m going to burst your bubble. I know a lot of people really want to see an ETF
happen because “to the moon and lambos!” But I think it is a terrible idea. I still think it is
going to happen, I just think it is a terrible idea. I’m actually against ETFs. I think a Bitcoin ETF is going to
be damaging to the ecosystem. Here’s why: a Bitcoin ETF [will be] a
very large custodial holder of bitcoin. That large custodial holder of bitcoin will
hold bitcoin on behalf of these shareholders and give them a traded share in that bitcoin. But they don’t give the owners of the ETF
[instruments] any of the responsibilities and rights… that a key holder of bitcoin has. As someone who holds keys to bitcoin, I have
more rights and responsibilities than someone who is simply trading in an exchange
or has an exchange-traded fund. You see, I can do things like: use my bitcoin to “vote”
[by] choosing which exchanges to send my bitcoin to, or if I [even] want to send it to an exchange. I can choose to pick up fork coins
because I have the original keys. If there is ever [another] fork debate, which
is very likely to happen again in any cryptocurrency, the fund that controls that bitcoin
now has a very large voice. Their shareholders don’t, they don’t get to choose which
fork the fund is going to follow in a Bitcoin debate. Maybe the fund follows both, maybe it gives
them some of their bitcoin from the other fork. We already saw that level of influence.
It occurred during the August 1st fork… and the user-activated soft fork (UASF) scaling debate;
Bitcoin Cash, Bitcoin Unlimited, Bitcoin XT… all of that scaling debate with
all of these fork coins that were available and the various clients that supported them. We saw that large custodial exchanges
had a very strong voice in the ecosystem. They were able to decide if they were going
to support or not support [a fork] on behalf of ten million customers. Essentially, moving opinion on
a very large amount of currency. An ETF will do that; it will do
that on an even bigger scale. It will give institutional players access
to “bitcoin,” but it won’t give them a voice in the consensus and governance of Bitcoin. That [voice] will be held by a centralised fund manager. That centralised fund manager will “speak on behalf”
of all of the people who have that exposure… to the ETF, because [the manager]
actually holds the keys to the bitcoin. That is a very bad thing. It’s not going to be the end of Bitcoin, it’s
just going to cause manipulation of the prices. It is going to cause manipulation of the debates
about scaling decisions, and if there are forks it is going to give these parties a
very large determining voice in forks. Eventually you’re going to see them split off
and form their own corporate version of Bitcoin. Let me give you a simple example: there’s a new
change being proposed for the Bitcoin ecosystem that allows for completely anonymous,
confidential transactions… with encrypted values, senders, and recipients. This change is being proposed as a soft fork.
Does the ETF manager adopt the soft fork or not? Well, they have a big problem. If the authorities are really pushing hard
against anonymous / private Bitcoin, they may feel obliged to not adopt that change. That means a hell of a lot of bitcoin is floating around
which doesn’t have privacy or anonymity protections, because the custodian of that
bitcoin hasn’t adopted that change. Effectively you now have two markets for bitcoin:
private bitcoin and not-so-private bitcoin. These are the kinds of problems
that happen with an ETF. ETFs fundamentally violate the underlying principle
of peer-to-peer money, where each user… is not operating through a custodian,
but has direct control of their money because they have direct control of their keys. Your keys? Your bitcoin. Not your keys? Not your bitcoin. An ETF is a multi-billionaire dollar
“not your keys, not your bitcoin” vehicle. That’s why I am against it.
I wouldn’t buy any. But it is going to happen anyway, because
there is enormous market appetite… and very little technical knowledge. Institutional investors simply can’t,
at the moment, hold bitcoin directly. Eventually, I think it’s going to create
two categories of institutional investors: those who have the technical know-how to actually
hold real bitcoin, gain all of the advantages of that, and have real financial independence; versus
institutional investors who don’t have technical abilities and therefore always use an intermediary. Very much like in the current Bitcoin ecosystem,
where you have users who hold their own keys and users who have a custodian exchange wallet
and are effectively second-tier Bitcoin users (if they’re even Bitcoin users at all).

100 thoughts on “Bitcoin Q&A: Why I’m against ETFs”

  1. I support what you states about the ETF, I didn´t see it that way but you are totally right!. I have a opinion about crypto´s being use as a medium of exchange first or as a store of value, would like to hear your thoughts on what you think of it:

    So, being the origin of crypto currencies as a store of value against the powers that be, against fiat money, to act as such have to be decentralized so it's money supply can't be changed at whim, just to benefit the oligarchy in power. That's the reason why cryptocurrencies as long as they are decentralized will never be allowed to served as a legal tender, never be allowed to extinguish debts in a legal contract. That's why in the legal state that we have crypto currencies serving as a medium of exchange is a contradiction for not understanding the underlying forces and fights that are in play.

    In other words, you can´t sue someone for breaching a contract where he obliged himself to pay with cryptocurrencies, because law doesn´t provide crypto with the legal tender authority, crypto can´t extinguish debt.

    This is the case right now until smart contracts can be fully implemented in our daily lives, when someone managed to make them easy to elaborate and to read. In a smart contract can be defined that the legal tender with the power to extinguish the obligations is a cryptocurrency, smart contracts being a self-executing contract written into lines of codes that doesn´t need the force of the State to exert it´s authority, accomplish the goal of given humanity a free commerce by the hands of the cryptos. When that day comes we won´t name it legal tender anymore, but code tender, as the new state of affairs will be sustained upon codes, returning capitalism to it's origin, without the fractional reserve banking side of it.

    Cryptocurrencies in the current state of affairs has more sense being a safe haven, a store of value, but not a medium of exchange.

  2. I wish people buy Bitcoin because they see the fall of Fiat Currency like what happened in Turkey lately, so that most people own Bitcoin for the right reason. ETFs will push up the prices of Bitcoin and altcoins and that may serve as a free "advertisement" for the Crypto space. However, through time, people will be smarter and wiser to see the difference unless they are plain "lazy" or "fearful" to be responsible to their own wealth, just like many around. But at least with Bitcoin, those who are wise and responsible have a choice now.

    By the way Andreas, you look much better with you staying a distance away from the camera.

  3. I agree with most of this but competition within the ETF world will drive them to offer things like voting and coins from coin splits to their costumers. That's if the government doesn't get too involved and stop certain ETFs from doing these things and picking favorites by way of regulation.

  4. Hello! I think ETF is one step more on grief stages, try to control bitcoin because of the lack of knowledge from investors, will open and advert the future for more understanding spread and finally use… I think is good news no because the price but the noise and impact is going to provoke. Just a matter of time. They are going to try to control it until mass media know what bitcoin is.

  5. Please explain how people can hold their own keys once adoption really gets going on the base layer with ~2MB blocks ?

  6. Agree 100%. Why would any serious believer buy bitcoin through ETF when it's probably easier to buy the bitcoin itself and store in your own wallet?

  7. andreas – although it might not be as pure, don't we want adoption? adoption is the key to this game. an ETF allows the technically less-skilled to adopt and access bitcoin easier. a deflationary, fixed-emission-rate currency will then have its price increase as more people have access to the same/less # of coins.

  8. Here is a question that I would love to hear your thoughts on, and hopefully there are more people interested to poke your brain on this one! So if you never read this, hopefully some one wants to post this question to your Q&A on patreon!

    If Bitcoin becomes widely adopted in the future, could a debate be started over code changes to introduce inflation?
    For example: They could convince a lot of people that we need inflation because a lot of coins are hoarded by a small group of people. Other arguments could be made ofcourse, and I fear a lot of people could easily be convinced by this.

    Do you think it is likely that this will happen eventually, and what do you think the outcome would be?

    Sorry if the question is long, but this is something I think about a lot. Perhaps right now we have a fixed supply, but what if the majority of the world gets convinced that we need to change that in the future…

  9. The only reason people are waiting for ETF is because of get rich quick mentallity, they hope bitcoin goes up fast after ETF so that they can sell their bitcoins for more dollars. They don't care about bitcoin itself. They love dollars

  10. That rage. Totally agree with you Andreas, the best would be that users held their btc but for some it's just too difficult or moreover, they don't care. They just want the exposure and have it easy.

  11. Question for Andreas: A bit off topic, but would be interested to know your thoughts on EOS and where in the light of EOS, you think the future of Ethereum lay and why?

  12. Wow i never thought of that. I liked an ETF because it will allow lots of institutional money to come into bitcoin and bid the price up enormously. Now that you mentioned about the voting, an ETF sounds like a terrible idea. It can cause lots of unnecessary difficulties and mess with the ecosystem. We need a way for institutions to be able to get into bitcoin safely and own their own bitcoins.

  13. If there ever is an ETF I'll carefully watch daily / weekly RSI levels and sell at least half when severely overbought. They'll be a massive pump and then dump of maybe 40%. Taking profits this next run.

  14. This did dampen my enthusiasm for the ETF. And now Nick Szabo is denouncing ETF's too. I guess the best case scenario, like the other commenter said is to have many ETF's to disperse risk.

  15. Thank you Andreas for the input. I thought an ETF was a good thing overall, as it would provide more capital in the market cap and so less volutility. It would be funny if Satoshi sell all his bitcoin when the big whales come in for pay back!

  16. You made good point with the custodial character and the decision making power they would obtain. I understand your concerns where speculators dont care and give institutions the power to shape their interests. This is only temporary. With current debates on data-ownership. The debate on money ownership will follow soon or late. ETF funds will be forced to transform their business models aswel to give this power in the hands of shareholders. In the current state of economy most BTC shareholders wont care about participating in the ecosystem. When blockchain 3.0+ (Decentralized autonomous organizations, governance) finds more and more integration in society, ETF shareholders will demand new features and business will naturally transform. In the end the whole world is changing not only Bitcoin. For now I think ETFs are a great intermediate step towards mass adoption of the currency.

  17. This stance is insane. Please, let us continue to have manipulation by anonymous wallets under no regulatory scrutiny instead of giving the chance for institutional investors to acquire a comparable holding and at least have to comply with SEC rules. Also, Forex trading does not limit what you can do with cash.

  18. All that ETF bullshit aside,i want to ask you Anto,is Exodus wallet is good solution for private investors in your mind?

  19. There is no escaping this guys. I respect Andreases points but I think it's a good thing. This is a way for them to get into Bitcoin. Dipping your feet in. Eventually they will come full circle and own their own keys. This is a necessary step in our evolution.

  20. Aren't the miners deciding if there will be a hardfork or not? The etf manager may profit from a fork, but he can't vote on it with the funds of the investors.

  21. While I totally agree with your points and ETF would also have some positive effects. I believe it would help to "legitimize" Bitcoin in way for many people, which might be beneficial for it's adoption and general acceptence. It would also take the fear off people that the governments gonna come after Bitcoin, which is still widespread in my experience.

  22. I see the Bitcoin ETF as a 2nd layer solution designed to fix the biggest problem central bankers and Wall Street have with it; scarcity.

  23. I disagree. Holding bitcoins grants no voting rights on anything in PoW based blockchain. However – it could be lethal for PoS. If you hold bitcoins during fork – all you can do is to decide which side of the fork you keep and which one you dump. But this decision is decided by the markets anyway, with or without ETFs. BCash had the support of Roger Ver and Bitmain which had a lot of BTC together yet failed to overtake the BTC in market cap. Even if they were – the BTC core will continue and outcompete the forks as the only core has the devs and community of hodlers.
    IMO ETFs change nothing material. And even if it were- it doesn't matter. BTC should withstand all attacks and win or die. If it can't survive ETF then it was a failure from the beginning.
    Anyway, here are the reasons I disagree:
    1. Only full node maintainers "vote" which fork they support.
    2. There will be more than one ETF. Moreover, ETF holders will want to get the maximum return and will not support the fund manager decision that might cause them to bet on losing fork.
    3. The previous attempts by whales to control Bitcon failed miserably.

  24. What's the difference between owning Bitcoin ETFs and having your Bitcoin on a centralized exchange? You don't own the keys in both cases.

  25. But you have to allow people to choose how they they want to hold their bitcoins. I don't want to bother to store my private keys as it makes me worried all the time that I may lose my keys. I just want to make the profit out of bitcoin in my comfort zone.

  26. shut up…i only need my money back and that's only possible if ETF is approved…once i get my money back then i am out…dance with ur ETF or BTC..i dont care

  27. Yes BTC ETF is very bad because of more manipulation by the Elite just like Comex has decimated Gold and Silver EFTs with paper contracts so the prices drop lower

  28. One step forward, two steps back. Progress? I guess it depends on one's definition of progress. Either way, excellent, well thought out, informative explanation. Thanks

  29. Can you define markets where it's traded as an ETF vs more broadly? How does manipulating the price in the ETF manipulate the price in the world wide market?

  30. I agree 100% that ETF's are not good. I have been saying since early last year. My concern is the whales being able to finally manipulate D.C.'s. New paradigm of currency, old paradigm rules. Makes for bubbles and corruption

  31. Am I the only bewildered person? Am I the only thinker? Am I the only sane person? Here's what has me going:

    The idea of BTC is that it will become money. History and human ingenuity gave us alphabets, some large, some small, each suited to a language or language group. Nobody controls them, but we all use them. There's no Central Alphabet Authority.

    Mathematicians and technologists gave us BTC. Hooray! Now the whole world can use this new thing that has its own life, needs no respirator (central bank), so governments can put their resources into more pressing needs. I totally love it,…

    …and get it. What I don't get is why people view it as if it were a corporation that pays interest or dividends, or has a rosy future. An ETF is a nice way to own dividend payers in a whole economic sector without having to be a stock picker. Great idea. I use 'em. In this way, even if a currency goes down against other world currencies, I'd still own "a piece of so many factories." Whether the factory pays a dividend in a few Euros or many Lira, the purchasing power of that payout should be, more or less, commensurate with the popularity of the factory's PRODUCT and future prospects. The proportions will be the same, regardless of the name of the currency (in a classroom non-friction model.) But exchanging Lira and Euros back and forth is just some kind of arbitrage (there's that friction), but there's no INVESTMENT. Ditto for BTC, except for the investment of being prepared for the future — which is a good idea.

    Look at these sentences:

    "What is his name?" It might be Joe or Fred or Nick. Fine.
    "What is he called?" That's essentially the same as the other sentence. Joe, or Fred or Nick.
    "What is his name called?" In a boolean world, that's nonsense. (Some languages might do that, but only as a grammar convention.) We don't call people's names anything. The name is the pointer to the actual person. It has no name. "What is his name called?" is like what users of the calculus would call a derivative, or differential.

    We don't ask how long a meter is. It's a meter. You could compare it to something else, but the meter is simply a standard and it won't ever represent any more centimeters or yards, or feet or inches than it does today.

    I'm not "investing" in yards or meters. I'll pay the same for a meter of cloth as I'll pay for 39 inches of the same cloth. The idea of an ETF of every measure is nonsense. ("You're covered with us. We buy every unit from angstroms to light years, and keep them in our secure vault.") At the very best, I might gamble what unit people will invoke upon being asked "How long is it?" I suppose a bookie could set up a game where you bet on what percentage of respondents will answer the question in yards. It would be "a wise investment" or a "good hunch" to bet on "yards" if the sampling is in the US, even though in the big picture, that would be considered a contrarian move. Is THAT what this whole shenanigan is about?

    It is my belief that, despite custom, it's smoother for everyone to use the metric system. Acres, rods, and hectares are just too clumsy. (Outside of international commerce, my own beloved and "advanced" country, the US, still measures in lbs and miles. Go figure.) Government money is also too clumsy. It has been working okay for an admirably long time, but the newer system is, all around, better. I think we'll eventually opt for the new system, so I buy BTC regularly, just waiting for others to see clearly. But, and please pardon my rudeness, WHAT THE HELL IS AN ETF OF THIS STUFF?

    I feel like I'm in a world of animals that eat their own tails. It's not a good sign to think I'm the only sane person in an insane world, but I can draw no other conclusion. Am I alone in this?


  32. Of course an ETF may cause an enormous interest and legitimize bitcoin to many who otherwise wouldn’t have bothered learning all its technical aspects. Later these ETF share owners will learn that they don’t need nor want a middleman to hold their bitcoin. Maybe this is the first step in the general public’s education.

  33. if the ETF is not just holding bitcoin, but also trading them for fiat; it would stabilize volatility, which would be a good thing

    but I have no idea if the ETF is indeed going to trade bitcoins or if it's just holding them

  34. If ETFs need institutional custodian services, then the September decision of the SEC should be negative. There are simply to few, if at all looking at the offerings, on the market at the moment. We're still waiting and talking with the normal such providers and they are not technically ready. Not only that, but the risk is still too high for them and the insurance companies to insure the assets for the custodians and depositories to feel comfortable. Indeed – the service would come to scale and speed, but not ATM. Therefore should that hint me that permission of ETFs is still further ahead than September?

  35. It looks like we are going in the exact opposite direction that Satoshi intended us to go… begging for institutional acceptance, and giving power to the same old few instead to give power back to the people.

  36. the main reason why people hate Bitcoin is the same reason why people hated Internet back at mid 90s. You cannot like something you don't understand. That keeps many people out of it. I believe that ETF will attract people since no crypto mumbo jumbo (wallets, keys , security…) is in play to confuse them. ETF is a good short term thing…its a training tool for adoption I like it as I dislike it

  37. key perspective to frame this is this: it’s not that few people fail to consider it – majority (realistically at this point in time) are short term speculators greed NOT long term hodlers. so it’s not in their best interest and subsequently purview. which means it’s actually not a lack of consideration but deliberate. misalignment of vision, consequently motivation and intentions ultimately.

  38. Isn't BTC proof of work? Why do they have more voting power then? I thought the miners have the voting power, not the holders?

  39. If ETFs are truly as bad as you think they are, then they are attacks. And Bitcoin would not be Bitcoin without attacks. Bitcoin requires attacks, or Bitcoin would not be Bitcoin.

    In retrospect, an ETF was always going to happen. If the ETF screws up Bitcoin, then it will mean an open, borderless, decentralized, consensus-based crypto currency cannot exist.

    As always, there will be post-ETF developments that are unforeseen. Just because you think ETFs are bad for Bitcoin, it doesn't mean they will actually be bad for Bitcoin. In retrospect, the contentious Bcash fork, which most considered to be a bad thing, has also been good for Bitcoin.

    Bring on the ETFs. It's merely nature taking its course.

  40. i totally agree with you. bitcoin not need an ETF. i always wonder on that. i don't think we should be pushing for btc to the stock market. totally centralized it all. my take sincerely jr of exciting world cryptos

  41. Regardless of the potential of cryptocurrency be sure to do your own due diligence on different crypto assets, so you arrive at your own investment decision.

  42. The question is how much are the fund willing to pay for bitcoin they're going to need to hold? This is incentive for the HODLers to keep HOLDing.

  43. again, we only need mass adoption, more lightning network, user-friendly applications,…

    (greed is the elephant in the room)

  44. this is contradictory to what Bitcoin represents, this will be the end of a digital cryptocurrency as Satoshi imagined

  45. Another major potential issue is the monumental security risk posed by such a large aggregation of bitcoins in a centralized fund. Ever heard of mt gox? If you think people are skeptical of trusting the Bitcoin protocol as it stands right now imagine how much worse it'll be after a funds gets hacked leaving retail and institutional investors alike burned with no recourse for recovering their funds

  46. At least for the short term to middle term, wouldnt ETF's simply make bitcoin more legitimate amongst the" not so completely" believers?

  47. Hi Andreas, I think you are completely right. All these attempt to fight the intrinsic bearer nature of digital assets are detrimental to the ecosystem health. I think the problem is that cryptos not only remove the need for 3rd parties but make them incompatible with the system. In today's world which is predicated on specialization this creates lots of problems for users that are not independently able to deal with the tech. I think a "solution" to the situation must be embracing the bearer nature of digital assets not fight it (ETF are essentially fighting it: it's doing the new thing in the old way) and a "solution" must be crypto in nature.

  48. hi talking about the etf's your comments re these etf's funds having a big say in the future of bitcoin, these etf's may or may not hold real bitcoin in these funds even if there holding A million bitcoin why would they have anymore say than say one person holding say 10 bitcoin ? would they be running one million bitcoin nodes??? so they can have the one million votes? by running the node software of choice? to support their line of thinking ?? am i missing something here?

  49. When you see BTC maximalists like Tone Vays and Jimmy Song begging for more regulations by governments and begging for wallstreet to come in – man, all your alarm bells should be ringing. Is this really still the BTC Satoshi was thinking about?
    For me BTC was always about "against government regulations" and "against bankers and wallstreet".
    And why are these new BTC maximalists suddenly even against a guy like Andreas?
    Hmm…perhaps these new BTC maximalists are working for the other side ….. Contra-revolutionary.

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