Spot Bitcoin ETF Could Lead to ‘Millions of Unsupported BTC’, Analyst Says

The approval of a U.S.-based bitcoin (BTC) exchange-traded fund (ETF) raises fundamental problems with Bitcoin's original vision by anonymous inventor Satoshi Nakamoto, an analyst said.

The concept of a spot Bitcoin ETF — an investment product that tracks the price of BTC by holding bitcoins — conflicts with the idea of ​​self-preservation, said Joseph Tetek, a bitcoin analyst at hardware crypto wallet firm Trezor.

Unlike Bitcoin ETFs, self-custody crypto storage solutions allow users to own Bitcoin by taking full responsibility for holding a private key – or actual assets.

“In principle, spot bitcoin ETFs take people away from self-protection and can introduce systematic risk, because ETFs are safer on the surface than on exchanges,” Tetek said in an interview with Cointelegraph.

Referring to the US gold confiscation in the 1930s, the fact that large amounts of BTC can be stored in central locations where the government can confiscate them may be one possible consequence of the acceptance of the Bitcoin ETF in place. Tetek added:

“And while a Bitcoin ETF makes exposure to Bitcoin price movements more accessible to individuals and institutions, simply buying Bitcoin the normal way provides the same exposure. Do we really need an ETF for this?”

Another significant issue with the Bitcoin ETF space is that ETF holders do not have the option to exit the underlying asset. Instead, these assets are held entirely by AFF, an unregulated “paper Bitcoin” that is not backed by real Bitcoin and whose supply is limited to 21 million coins, he said. The analyst said:

“The result could be the creation of millions of unbacked bitcoins, distorting real markets and devaluing real bitcoins – all while transferring great agency to centralized and traditional financial giants. The opposite of Satoshi's original vision.”

Tech comments on self-healing and position Bitcoin ETFs flagship may be low amid growing optimism in the market, with various companies and analysts expecting US securities regulators to approve the BTC ETF position in January 2024.

Related: ARK's Cathi Wood Sees Short-Term Outcome of Spot Bitcoin ETF as ‘Selling on News'

Not everyone is optimistic about spot BTC ETFs, though. Arthur Hayes, co-founder of the crypto exchange BitMX, believes that if BTC ETFs become very successful, they could “completely destroy” bitcoin. If not Bitcoin, ETFs like Coinbase could compete with centralized crypto exchanges, according to some Bloomberg analysts.

According to Quantum Economics founder Matty Greenspan, there is no direct conflict between self-hedging and Bitcoin ETFs, as retail users remain hedging.

“Personally, I would never buy any paper IOU forms of Bitcoin, but that's because I have the option to manage myself,” Greenspan told Cointelegraph. “Most institutions don't have that option,” he added.

“There are zero pros and lots of cons for retail investors to hold Bitcoin ETFs. As Greenspan points out, it's better to just hold bitcoin.”

Magazine: How to protect your crypto in a volatile market — Bitcoin OGs and experts weigh in.