In its continued evolution as a financial asset, Bitcoin has pivoted from peer-to-peer trading on platforms with tarnished reputations (see FTX and Binance) to being traded on the most liquid markets on earth: US commodity and stock exchanges. On the surface, this may seem like a step in a long-term plan to limit the amount of speculation driving cryptocurrency prices through the price discovery mechanisms provided by established exchanges. However, the reality is simple—Bitcoin needs more hodlers and liquidity to remain a going concern, buying time for crypto exchange platforms to recover from the fallout of recent mishaps since its previously approved Futures ETF (since 2021).
To understand how this event may turn out to be another nothingburger more than anything else, we can revisit crypto’s initial entry into ETFs—the Bitcoin Futures ETF, approved in 2021 by the SEC. These approvals allowed individual investors and advisors to access Bitcoin exposure through traditional brokerage and retirement accounts. However, with the anticipation of spot Bitcoin ETFs entering the market, some experts predict a potential shift in investor interest away from the previously novel futures products. Grayscale, seeking approval to convert its Bitcoin Trust into an ETF, expects institutional investors to use futures-based ETFs to a limited extent. Despite the initial success of the ProShares Bitcoin Strategy ETF (BITO), which saw substantial trading volume and rapid asset growth, it has experienced a decline in value since its launch, mirroring Bitcoin’s volatility. The market performance of Valkyrie’s Bitcoin Strategy ETF (BTF), which expanded to include Ether futures, has followed a similar trend. While the Bitcoin futures market is deemed mature, liquid, and regulated, uncertainties persist regarding the spot market, contributing to the ongoing debate on the efficacy of spot versus futures-based ETFs. Enter the Spot version of Bitcoin ETFs.
This entry into centralized exchanges may as well be the sign of cryptocurrency transforming from a perceived disruptor of industries to just another ticker to bet on. To understand why, let’s take a quick look back at how the crypto era started. Initially designed and built by the mysterious Satoshi Nakamoto, Bitcoin was born as a counter to the “evils and weaknesses” of the formal financial market reeling from the Global Financial Crisis at the time. Its purpose was to put the power of Bitcoin’s value and utility in the hands of its miners/holders without the need for a trusted third party or intermediary, like regulators such as the Fed/SEC and exchanges like CBOE, NYSE, and Nasdaq. However, as the US markets open after the SEC’s approval of Bitcoin ETFs, 11 new Currency ETFs are available to trade with custodians like Blackrock, Invesco, and Fidelity, signaling for potential risk-averse investors to consider investing in Bitcoin without the complications and risks of owning Bitcoin directly. Meanwhile, other currency ETFs are waiting for approval—some short on Bitcoin and long on USD, and others focused on “reputable” cryptocurrencies like Proshares’ and Ark 21Shares’ Ethereum strategy ETFs.
In short, decentralized forms of currency/assets are now being bundled by custodians to sell on centralized markets. Now, you may be asking, what about the other objectives of Bitcoin? There were no other notable ones; decentralization and a fancy algo to make ‘blocks’ (ledgers, basically) created through trust were its thing. Instead of being the trailblazer it once was, cryptocurrency seems more like it’s on a slow march to obscurity as cryptocurrencies begin centralizing bit by bit.