As the price of bitcoin approaches yearly lows, the anticipation of one event is keeping the crypto community positive—approval of a Bitcoin ETF, which would open up the commodity to institutional investors.
But amid the calls for approval, one bitcoin evangelist has come out against the scheme. Andreas Antonopoulos, who has been involved with bitcoin since 2012, claims a Bitcoin ETF is a wolf in sheep’s clothing, and that it will only lead to more centralisation.
As Antonopoulos says, while an ETF approval might open the flood gates to institutional money, its implementation is likely to undermine the principles that make bitcoin so compelling.
“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.”
The commodities markets are notorious for high levels of manipulation, and Antonopoulos argues that a Bitcoin ETF would only increase the ability of institutional investors to influence prices.
When the first Gold ETF was approved in 1973, its price surged over the following years. But many investors believe that the ETF helped big institutional players interfere with the free gold market.
“opening up these exchange-traded instruments only increases the ability of institutional investors to manipulate—especially large market makers—the prices of commodities, not just in the markets where it’s traded as an ETF but more broadly” says Antonopoulos.
This potential for manipulation is one of the key concerns the SEC cited when it rejected the Winklevoss twins’ application for their own bitcoin fund a few weeks ago.
Not your keys, not your bitcoin
Back in 2013, Antonopoulos spoke positively about the possibility of a bitcoin ETF, telling Bloomberg that it could bring mainstream views, perspectives, and mainstream investors into the space. But it seems that he has since changed tack, and now expresses concerns over not just market manipulation, but damage to the ecosystem inflicted by the loss of the rights and responsibilities of investors.
As Andreas points out, the key issue is custody. With bitcoin, ownership is clear cut—you either have the private keys, or you don’t. As ETF investors wouldn’t hold any private keys, they wouldn’t actually hold bitcoin—just an IOU, meaning they miss out on the opportunity to vote, pick up forked coins and participate in discussions on governance.
“Those who buy ETF are not getting the full bitcoin ownership rights, only a diluted exposure to the price. They become second-class bitcoin users, who are not actually bitcoin owners.”
According to Antonopoulos, by holding such large amounts of bitcoin on behalf of investors, fund managers will be given a disproportionately loud voice in the ecosystem. So when debate occurs, as it naturally will, then the large custodial holders of bitcoin will hold too much sway over the outcome.
Given more influence over development decisions, Antonopoulos speculates that these large custodial holders could potentially split off and create their own corporate version of bitcoin:
“[Imagine] there’s a new change being proposed for the bitcoin ecosystem that allows completely anonymous confidential transactions with encrypted values, encrypted senders, and encrypted recipients, proposed as a soft fork”
This scenario would present a problem for institutions, he argues, suggesting that fund managers would be more likely to yield to the influence of authorities pushing hard against anonymous cryptocurrency. While this wouldn’t be fatal, it might be a stumbling point, Antonopoulos told Brave New Coin:
“This is not the end of bitcoin. ETFs will make it harder to implement certain controversial changes, such as stronger privacy/anonymity, as these changes will jeopardize the regulatory standing of the ETF companies and they will resist. That’s a good reason to accelerate those changes. ETFs will increase “adoption” but at the cost of that adoption being diluted in power and control.”
Some degree of custody is an inevitable result of adoption, and it might be argued that the dilution of power is also inevitable. But if authorities want to put bitcoin back in the Pandora’s box, they might find that they have bitten off more than they can chew:
“Centralized ETFs are not as dangerous to bitcoin as bitcoin is dangerous to centralized ETFs. I think it is unavoidable that at some point the ETF custodian will be digitally robbed and the assets will be lost, leaving the ETF holders without recourse.”