Bitcoin ETF to Cause Potential Problems? 

The potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States is raising concerns among some industry analysts about its implications for Bitcoin’s original vision as envisioned by its anonymous creator, Satoshi Nakamoto. Josef Tětek, a Bitcoin analyst at Trezor, a hardware crypto wallet firm, suggests that a spot Bitcoin ETF, which would track BTC’s price by holding the cryptocurrency, could deviate from the principle of self-custody inherent in Bitcoin.

Self-custodial solutions, unlike a Bitcoin ETF, enable users to truly own their Bitcoin by having full control over the private keys, which are the access points to the actual assets. Tětek argues that spot Bitcoin ETFs could lead people away from self-custody and introduce systemic risk, as they appear safer than exchanges on the surface.

In a recent interview, Tětek highlighted potential risks, including the centralization of large BTC holdings in locations vulnerable to government seizure, reminiscent of gold confiscation in the U.S. during the 1930s. He questioned the necessity of ETFs, pointing out that buying Bitcoin directly offers the same price exposure.

Another concern Tětek raised is that ETF holders won’t be able to withdraw the underlying Bitcoin, which could lead to the unchecked issuance of “paper Bitcoin.” This scenario, he argues, could create millions of unbacked Bitcoin, distorting the market, depressing the value of actual Bitcoin, and strengthening centralized financial systems — counter to Satoshi’s vision.

Amidst market optimism, with many firms and analysts expecting a spot BTC ETF approval in January 2024, not all voices echo this sentiment. Arthur Hayes, co-founder of crypto exchange BitMEX, warned that such ETFs, if too successful, could “completely destroy” Bitcoin or pose a threat to centralized exchanges like Coinbase due to potentially lower ETF fees.

Mati Greenspan, founder of Quantum Economics, however, sees no direct conflict between self-custody and spot Bitcoin ETFs. He believes that retail users will continue to prefer self-custody. Greenspan stated to Cointelegraph, “There are zero advantages and plenty of disadvantages for retail investors to hold Bitcoin ETFs. Way better to just hold Bitcoin,” emphasizing the benefits of direct ownership over paper IOU forms of Bitcoin, especially for those who can opt for self-custody.

Of course, the counter argument FOR Bitcoin ETFs is that it more easily opens up access to Bitcoin price discovery without the need to go through the hassle of securing your private keys, or of trusting a centralized Bitcoin exchange. 

The real question is how much of the $30+ Trillion US risk markets will now funnel their way into a Bitcoin ETF, once it is available?