Andreas Antonopoulos Says Bitcoin ETFs Are a ‘Terrible Idea’. Does He Have a Point?
Influential crypto thought leader Andreas Antonopoulos has spoken out against bitcoin ETFs, calling them a “terrible idea”. As a proponent of the crypto asset revolution and the widespread adoption thereof, why would Antonopoulos disapprove of a financial instrument that will surely bring more money and attention to the market?
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Not Your Keys, Not Your Bitcoin
Antonopoulos’ opposition to bitcoin ETFs — which he concedes are inevitable — can be distilled into two main concerns. One is that investors in bitcoin ETFs do not have the same rights or responsibilities as holders of — for want of a better description — “physical” bitcoin. Per Antonopoulos:
“An ETF is a multi-billion dollar not your keys, not your bitcoin vehicle.”
The bitcoin advocate is concerned that a custodial arrangement of the size of an institutional-level bitcoin ETF would “fundamentally violate the underlying principle of peer-to-peer money”. Physical bitcoin holders are required to deal with private keys and the technical complications of owning cryptocurrency. ETFs provide investors access to the asset without having to navigate the intricacies of custody.
While that arrangement benefits commodities that are not feasible to exchange in pure physical form, Antonopoulos believes cryptographically secured currencies have a different set of characteristics that make ETFs less conducive to the health of their ecosystem.
He points to the influence large exchanges had over the scaling debate that resulted in the bitcoin cash fork mid-last year. Bitcoin owners who held their coins on exchanges or in custodial wallets had no control over whether the fork, or the new currency, would be recognized. They were subjected to the whims of the custodian of their bitcoin.
Manipulation, Manipulation, Manipulation
Antonopoulos also raises concerns about price manipulation. He argues that commodities markets are heavily manipulated because of the presence of funds and derivative products, and ETFs would bring those same problems to cryptocurrency markets. He suggests an exchange-traded market:
“only increases the ability of institutional investors to manipulate… the prices of commodities”.
He is not alone in having this concern. The dissenting voice in the SEC’s decision to reject the application that would have seen the Winklevoss twins’ bitcoin ETF product traded on Bats BZX Exchange, Inc., Commissioner Hester M. Peirce wrote that “rumors of manipulation plague many commodity markets, and surveillance-sharing agreements with regulated markets cannot eliminate the sometimes messy nature of the commodities markets”.
Peirce reached a different conclusion, however, over concerns that bitcoin ETFs would usher in a new wave of manipulation. In her public statement of dissent, Peirce strongly argued that seasoned institutional money, would, if anything, bring price stability to crypto markets:
“More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order.”
She added that the regulatory oversight that ETFs, by law, attract would provide a preventive mechanism against manipulation. According to Peirce, BZX rules:
“would impose obligations on registered market makers in the shares intended to deter market manipulation and other misconduct, including limitations on certain trading activities and a requirement to make available to BZX certain records of transactions by such market makers.”
Andreas Antonopoulos Has a Problem With the Magnitude of the Influence, Not the Influence Itself
The issues Antonopoulos raise appear to relate primarily with the probable size of the physical bitcoin holdings the fund would have in its custody on behalf of its ETF investors. Bitcoin price manipulation has been anecdotally suspected since it was created. Exchange-traded bitcoin funds would not bring manipulation to a perfectly innocent marketplace.
Similarly, as the crypto enthusiast points out, custodial arrangements cause disparities in power, denying bitcoin owners that choose not to hold their private keys access to decision-making processes they should ordinarily be afforded. Using an unresolved precedent as an analogy unfortunately undermines the argument that ETFs would only soil a hitherto untainted marketplace.
Derivative products — surely the ultimate goal for Wall Street but much further away than ETFs — could be a different kettle of fish. But it is not clear what damage exchange-traded funds of custodian-held bitcoin could do to the market that isn’t already being done. It is clear Antonopoulos’ concerns mainly relate to the scale of the potential impact of ETFs and not the nature of it. And on both issues of concern, his reservations are not shared by Hester M. Peirce.
Having said that, Andreas Antonopoulos is an influential speaker and writer and has proven particularly insightful in the past, describing the pre-collapse Mt. Gox as “a systemic risk to bitcoin, a death trap for traders and a business run by the clueless”. Perhaps then his warnings should be given some consideration.
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