In early 2024, the cryptoworld is excited about ETFs (Exchange Traded Funds) are securities that track the price of an asset, and can be traded like stocks. The excitement this brings has brought a bullish sentiment to BTC.
What could this excitement be about? Securities are traditional financial market instruments, so they should not be compatible with crypto.
Well, honestly speaking, if you were to say that, it would sound like you are a , but failed to understand important concepts in finance. It is not about being compatible or in line with Bitcoin's ideology. Does it mean they are taking over Bitcoin? Let's discuss that later, but first things first.
What ETFs will bring to Bitcoin is liquidity. With more consistent liquidity, it is expected that there will be less volatility.
The overwhelming expectation from bulls is that there will be a massive inflow of capital into Bitcoin, which will pump the rest of the cryptocurrency market. There have been predictions that this could already bring BTC to a price above $100K.
Traditional fund management firm Blackrock have submitted an ETF application. They are not the only one, as there are already several ETF applications awaiting SEC approval.
The responses from some top executives have also been positive.
Cathie Wood (CEO- ARK Invest) it will drive BTC price up once institutions have access to the ETFs. Samson Mow (CEO - Jan3) expects BTC to reach $1 Million once the ETFs have been approved.
These are just predictions, but one thing is clear. Many in the cryptoworld, from analysts to influencers, are keeping their eye on the market cap, expecting it to "reach the moon".
There is another side to what the ETFs will bring to Bitcoin. If you are paying attention, then you will understand that most of the ETF hype is coming from crypto's traditional enemy which is the traditional finance sector.
What will happen is greater adoption for BTC as an investment asset, but this brings it more into the mainstream. Which means access from big money fund managers who are from Wall Street and major financial institutions.
This will align Bitcoin with banks, as they become part of providing liquidity. Banking giant JP Morgan Chase was named as an authorized participant in the ETF filings. Many probably know that the CEO of JP Morgan Chase is not exactly crypto-friendly
So, why are the banks and financial institutions so interested or even enthusiastic about the Bitcoin ETFs all of a sudden?
It is all about the money. It seems obvious that with the ETF applications, institutions have more belief than ever that BTC is a valuable asset. Under regulatory control, it becomes a viable investment under a legal framework, allowing exposure to a larger market.
Let us return to the question "Does it mean they are taking over Bitcoin?"
Elements of traditional finance will enter the Bitcoin space, like centralized decision-making bodies (e.g. SEC, banks) who hold influence. While they cannot directly recreate the Bitcoin protocol since it is decentralized, they can affect its price. This could lead to more price manipulation that favors the institutions while unfair to the retail market.
The good news is that the Bitcoin protocol was designed to balance things if it is leading to more centralization or divergence from its original philosophy. The network consists of many participants who have functions, and that is something that traditional finance cannot fully control. This consists of the people who add value to the network, and they can provide a counter to balance the threats on the Bitcoin blockchain.
The blockchain provides transparency and immutability, important features that secures data on the network. This is by design so that everything is recorded on-chain and cannot be modified to favor any institution.
The ETFs success could very well change the finance industry with the formal adoption of Bitcoin. It will also push the boundaries of the Bitcoin protocol, and we will see if it breaks or not. The hope is that it will pass the test and solidify the strong foundations of its principles.
Disclaimer: This is an opinion piece and not financial advice. Bitcoin and cryptocurrency is not without risk. Please do your own research always for education and further understanding.
