Bitcoin ETFs Stir Optimism, Ambivalence and Dread Among Crypto's Staunchest Supporters

They make the asset class "less of a scary concept" to mainstream audiences, bitcoin advocate Jameson Lopp said.

AccessTimeIconJan 11, 2024 at 5:51 p.m. UTC
Updated Mar 8, 2024 at 7:48 p.m. UTC
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  • As the first batch of spot bitcoin ETFs starts trading, crypto advocates grapple with its implications.
  • While some view crypto's linking up with traditional finance as a positive and inevitable part of going mainstream, others worry it spells bad news for the promise of decentralization.

It's official. The U.S. securities watchdog on Wednesday made history by begrudgingly approving a batch of bitcoin spot exchange-traded funds (ETF), energizing markets that were for months trembling with anticipation.

These hard-won approvals are largely viewed as a leg-up for an industry hoping to rebuild its reputation after 2022's spectacular market collapse fueled by Sam Bankman-Fried and others. But for long-time crypto advocates, considerations may go beyond market recovery.

Some fear that fraternizing with crypto's original enemy – traditional finance (TradFi), Big Banks and Wall Street, which early fans of the Bitcoin blockchain had in their sights – threatens to break its original promise of decentralizing financial services. Others contend that bitcoin (BTC), the cryptocurrency, was intended for the masses, and that some form of alignment with TradFi was unavoidable – with benefits to both parties.

"It was always an inevitable part of the process of going mainstream," Jameson Lopp, software engineer and bitcoin advocate, said during an interview, speaking about crypto and TradFi colliding through the creation of bitcoin ETFs. "Wall Street wants a cut of the action."

However, these bitcoin ETFs will "accelerate the flywheel of adoption" and make the asset class "less of a scary concept" to mainstream audiences, he added.

Spot ETFs allow investors to take advantage of the popular cryptocurrency's volatile price movement sans the hassle of having to learn about strange-sounding concepts like self-custody, blockchain and private keys.

Erik Voorhees, one of crypto's earliest entrepreneurs, said on social media platform X that the "most important result" of bitcoin ETFs would be dissuading governments from treating the crypto harshly.

"When 50 million boomers own [bitcoin] passively, the political and economic damage from a ban will be significantly less palatable. It's no longer just an asset for shadowy super coders," Voorhees said. "And it's absolutely a Trojan Horse about to be pulled through gates of Troy."

Threat of corruption

If Satoshi Nakamoto releasing the Bitcoin white paper 15 years ago was an almighty act of rebellion against TradFi – like the Greek god Zeus fighting his titan father Cronus to avoid being eaten up like his siblings – then bitcoin was supposed to be the people's weapon against the unchecked power of big banks, whose irresponsibility and greed brought the global economy to its knees in 2008.

It's unsurprising, then, that to some purists on both sides, the ETF approvals not only represent the convergence of two worlds designed to be rivals, but the potential corruption of both.

"The approval of bitcoin ETFs will inevitably turn out to be a very bad thing for Bitcoin decentralization," said Proof of Decentralization podcast host Chris Blec on X.

While ETFs will see new institutional and retail money flowing into crypto, Nicky Gomez, senior partner at XReg Consulting, warns they will also influence more centralization moving bitcoin "further away from its true value and potential."

"Ultimately, this will spur a larger divide with the crypto purists," Gomez said in a statement shared with CoinDesk.

On the TradFi side, economic security nonprofit Better Markets criticized the SEC approvals on X, saying bitcoin and crypto "remain the preferred product of speculators, gamblers, predators and criminals."

SEC commissioner Caroline Crenshaw called the development "unsound and ahistoric" in a Wednesday statement.

Though he doesn't think bitcoin ETFs are good or bad for crypto, Lopp hopes huge fund inflows and mainstream interest won't change the protocols of networks like Bitcoin.

"Hopefully, the ETF issuers won't care much about the properties of the protocol because they won't actually be interacting with it – their custodians will handle all the heavy lifting," Lopp said.

As for whether ETFs will work against the idea of self-custody championed by crypto, Lopp said keeping control of one's assets was always an optional thing.

"If someone prefers the convenience of an ETF over holding the actual asset, that's their choice. One could make similar arguments with regard to any commodity that is traded via ETFs. Few folks want to take custody of barrels of oil, for example," he said.

A case for the inevitable

Like Lopp, CoinDesk columnist and equity researcher J.P. Koning makes a case that crypto mingling with TradFi was inevitable.

"Since bitcoin was first introduced in 2009, adoption has always relied on close integration with traditional finance, so a bitcoin ETF is nothing new, really; it represents just one more upgrade of the very old linkage between the two," Koning said.

A rather straightforward view would be that, at the end of the day, it all comes down to price.

"I don't see bitcoin ETFs as clashing with what original proponents of crypto hoped for, because from the very start even the most idealistic strains of bitcoinism were always twinned with the raw desire to make money," Koning said. "For the number to go up, more funds must be drawn in, which requires not only relying on the linkages already forged to traditional finance, like the integration with the card networks, but new forms of interconnection."

"After the ETF has begun to trade, the bitcoin community will go on to pushing for the next big bond to TradFi, because that's what will drive the price even higher," he said.

Edited by Nick Baker.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.

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