Bitcoin ETF, the right thing to happen?

1} Bitcoin ETF is a DOUBLE edged sword

It promises mass adoption and capital flow into Bitcoin, but there is a risk - Centralizing Bitcoin. Let's see how,

Fundamentally, if the ETFs managed by TradFi asset managers are too successful, they may completely destroy Bitcoin. There is a profound difference between Bitcoin and every other monetary instrument that may make it possible

Every other monetary asset human civilization has ever used exists physically due to natural laws. Gold as a substance is Gold not because we say it is, but rather because it exists in nature. Fiat, is a piece of paper, but still a physical sheet of matter

And so you dug a hole and deposited gold and reams of paper and came back in 100 years, the gold and paper would still exist. Bitcoin is completely different. It is the first monetary asset in human history that exists only if it moves. After Bitcoin block rewards hit zero around 2140, miners will only be rewarded for validating transactions via transaction fees.

That means miners will only receive Bitcoin income if the network is used. In essence, if Bitcoin moves, it has value. But if there was never another Bitcoin transaction between two entities, miners would be unable to afford the energy it costs to secure the network. As a result, they would shut off their machines. Without the miners, the network dies, and Bitcoin vanishes

This is where Blackrock like asset managers become the devil. It is in the asset accumulation game. They vacuum up assets, store them in a metaphorical vault, issue a tradable security, and charge a management fee for their “hard” work.

2} Imagine a future where the largest asset managers hold most of the Bitcoin in circulation.

This happens organically as people confuse a financial asset with a store of value. Because of their confusion and laziness, people purchase Bitcoin ETF derivatives rather than buying and hodling Bitcoin in self-custodied wallets.

Now that a handful of firms hold all the Bitcoin, and have no actual use for the Bitcoin blockchain. The coins never move again. The end result is miners turn off their machines as they can no longer pay for the energy required to run them.

And Bitcoin becomes irrelevant. Now this is something that plays out over a long time frame and we probably do not have to worry about it for next few decades, but this is one the high potential scenarios.

We currently have about 2-3M Bitcoin on exchanges, rest is decentralized and in the hands of other entities, so as long as these entities (including individual holders) do their job, we should be good.

The global cryptocurrency market cap today: $1.74 Trillion

Daily change: -0.8% | Yearly change: 102.22% 

Bitcoin (BTC) is the largest cryptocurrency with a market cap of $862 Billion.

Weekly change: 4.15% | YTD change: 4.13%

Another important metric is Bitcoin dominance which can be used as a rough indicator of the relative strength of Bitcoin versus other cryptocurrencies. A high Bitcoin dominance means that Bitcoin has a large market share and is potentially more influential in the overall cryptocurrency market and vice-versa.

Bitcoin dominance: Current Year: 52.23% | Last year (Jan 2023): 40.79%

The market sentiment has greed levels in the higher range with current Bitcoin and Altcoin rally

Note: The data used is based on metrics like Volatility, Surveys, Bitcoin Dominance, Social and Google Trends. Source: Coinstats

Let's have a look at Ethereum supply changes post its merge to a PoS blockchain from PoW.

The significance of the chart - understand how the supply of Ethereum is decreasing post the merge, which means “deflationary economics” for the Blockchain

Supply change since merge POS -338,226 ETH

The graph highlights POS issuance since the merge. Impressive numbers, look super bullish for ETH long term given the supply of ETH is not growing as before

Final Bitcoin ETF Application Filings Get Posted by Major U.S. Exchanges Releasing them suggests they’re confident the SEC will approve the first U.S. spot bitcoin ETFs soon.

Arthur Hayes Foresees 30% Bitcoin Crash Amid 'Vicious Washout.' Here's Why Markets may relive last year's U.S. banking crisis as a crucial funding program is set to expire, Hayes said.

Parallelized EVMs

Reach out to me on Twitter or LinkedIn for any feedback :)

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own researchETF