The SEC’s recent decision to approve nearly a dozen bitcoin ETFs was hailed as a significant win for crypto. But not by everyone. On X/Twitter, a disgruntled faction of the cryptocurrency community cried foul over the alleged heresy of a Bitcoin product custodied and marketed by BlackRock. The most common objection seems to be that “Bitcoin doesn’t need an ETF” and that using intermediaries to purchase it—particularly from Wall Street— perverts the ideal of decentralization.
Conversely, people like a self-described researcher “Chris Blec” went so far as to suggest that BlackRock and others might conspire to alter Bitcoin’s core features. And OG Bitcoiner Max Keiser warned of a scenario where the US government confiscates the bitcoins held by ETFs.
This outcry is misguided. A bitcoin ETF is an excellent thing for furthering the original mission of the bitcoin project, and it’s a safe bet that Satoshi Nakamoto—wherever he is—is nodding happily at this new tool to acquire his creation.
Recall Bitcoin is meant to be a type of peer-to-peer digital cash that the whims of any intermediary can’t usurp. And if Bitcoin is intended to enable individuals to be their bank, an ETF strengthens its case as a store of value. The way a store of value works is that you buy it with excess savings and sell it when you need to consume it at a later point. A censorship-resistant, seizure-resistant store of value works by buying it when you need the protection it affords you and selling it when you don’t. In other words, people willing to hold Bitcoin without needing its raison d’etre render a valuable service to those who do need it.
I buy Bitcoin mainly because other people will accept it. If I were living in an authoritarian regime, I would prefer to buy Bitcoin over the local currency because I know it has a global market outside of the capital controls, destroying my wealth. Knowing that a bitcoin market caters to even the most straight-laced investors in the world’s largest capital market strengthens that case.
Bitcoin was engineered for censorship resistance and portability, which means it can be taken anywhere in the world. Keeping Bitcoin safe is maintaining a secret string of characters, which could reside in your head if needed. It’s a sad sign of the times that this feature of Bitcoin is becoming more critical as capricious government policies leave more and more people “unbanked.” Even more unfortunate is that the use cases for Bitcoin have grown due to armed conflict and a mass capital flight in recent years.
Bitcoin holders have always rendered a service to bitcoin-needers. Over the last decade, companies like Coinbase and Kraken have made it easy to set up exchange accounts to buy a bitcoin or a fraction of a bitcoin. It’s fair to wonder what the market is for Bitcoin ETF buyers in 2024.
Under existing regulations, it’s much simpler for an ETF to be held in an IRA or a 401k than any crypto-token because the issuers of these assets are audited in a way compatible with modern financial services’ requirements. Thus, ETFs can broaden the market by appealing to a different segment of potential consumers. Moreover, fewer bad experiences with security and liquidity for the average Bitcoin owner mean better outcomes for the industry’s reputation. For years, journalists have breathlessly covered stories about lost fortunes made by users’ errors (and devised creative accounting methods to exaggerate their impact).
To put it another way, spot bitcoin ETFs help solve the last-mile problem for cryptocurrencies. The cryptocurrency market has, to date, been saturated by ideologues and gamblers. The appearance of audited vehicles holding Bitcoin creates more liquidity globally without alienating potential users by burdening them with esoterica that early ideologues (like me) readily tolerated. Instead of committing to finding security solutions that usually resemble a Rube Goldberg machine, the marginally interested, crypto-curious consumer can now enjoy an easy entry into this grand experiment. Bitcoin may not need an ETF, but it certainly needs an alternative to safety deposit boxes and Ledger devices.
Average folks, not just the tech-savvy, who are bitcoin-curious, can now contribute to Bitcoin’s liquidity by dipping their toe into the ETF pool. Ultimately, this should be celebrated by even Bitcoin’s most old-school believers – not to mention the people using it as a lifeline.