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Emerging Interest in Crypto-based ETFs: A Trove or Trap?
Recently there has been a remarkable upswing in interest from conventional finance sectors in cryptocurrency-based exchange-traded funds (ETFs). Instances include the renewed application for a Bitcoin ETF by BlackRock after the initial reports were not accepted by the Securities and Exchange Commission, and HSBC’s new offering of Bitcoin and Ether ETFs to their Hong Kong customers. However, we need to examine the long-term implications of such ETFs on Bitcoin.
A Historical Rundown: Split Opinions and Market Instability
Often, what seems to be good news for Bitcoin in the short term can be detrimental in the long run. Take for instance, FTX, that till late 2022 appeared to be a positive shift towards mainstream crypto recognition, ended up decimating investor trust and regressed the reputation of the industry by several long years.
Why Centralized Exchanges and ETFs Aren't the Best Bet
Centralized exchanges may not be the ideal choice for regular investors enthusiastic about leveraging the potential of Bitcoin. In fact, Bitcoin-related ETFs could pose a more significant threat since they offer no opportunity for withdrawal of Bitcoin itself.
This deprives their owners of a cardinal Bitcoin feature - full authority over their funds without any external dependency.
The Dangers of 'Paper Bitcoin' and the Power of Owning Mathematical Keys
The implications of ETFs extend to wider market impacts. The risk that 'paper Bitcoin', claims not backed by actual Bitcoin, would adulterate the market and weaken Bitcoin's monetary policy exists. Bitcoin ownership is intricately tied to controlling the cryptographic keys linked to specific Bitcoin addresses. Legal ownership doesn't necessarily mean direct control over the keys, making full control of the keys the safest way to ensure Bitcoin ownership.
Bitcoin Adoption and the Impact of ETFs
Several might welcome the short-term price hike associated with a major Bitcoin ETF approval. However, the impact of such a decision on long-term Bitcoin adoption may not be as rosy, potentially even adversely affecting Bitcoin's long-term price. Self-custody is the only type of adoption that truly counts, marking everything else as a potential peril.
