Bitcoin ETF Boom: Wall Street's Necessity in Crypto Success

• First Bitcoin Spot ETF Approved by the SEC
• Bitcoin and Its Original Purpose
• ETFs and Ownership of Bitcoin
• Why the Excitement Over the Bitcoin ETF?
• The Credibility Factor

First Bitcoin Spot ETF Approved by the SEC

In a landmark moment for the crypto industry, the Securities and Exchange Commission (SEC) has given green light to the first Bitcoin$42,260 -0.64% spot exchange-traded fund (ETF) in the United States. It is intriguing to note that this mainstream investment vehicle could seemingly contradict Bitcoin's original objective of distancing from Wall Street. Nevertheless, this ETF is deemed crucial for the growth of the crypto industry, which up until now, has struggled to achieve mainstream acceptance alone.

It's clear that the crypto community has been eagerly awaiting this ETF for several years. Despite the SEC previously rejecting numerous applications, the tide appears to be turning. While the exact cause of Bitcoin price movements is always uncertain, it's reasonable to assume that the recent surge in Bitcoin's price, which rallied nearly 160% in 2023 and has gained 50% in the last six months alone, may be driven by ETF anticipation.

Bitcoin and Its Original Purpose

Let's address the fact that Bitcoin was designed to minimize reliance on financial institutions. This vision was proposed by Bitcoin's pseudonymous founder, Satoshi Nakamoto, following the 2008 financial crisis and subsequent loss of trust in the banking system. The first line of Bitcoin's white paper abstract envisions a purely peer-to-peer version of electronic cash that eliminates the need for a financial institution in online payments. However, an ETF fundamentally contradicts this as it not only provides exposure to Bitcoin through traditional brokerage accounts via the stock market, but also involves financial institutions like Blackrock, Grayscale, and Fidelity, the very intermediaries Nakamoto wished to eradicate.

ETFs and Ownership of Bitcoin

Furthermore, the popular crypto adage, not your keys, not your coins, highlights a critical aspect of Bitcoin ownership. If someone holds Bitcoin on a crypto exchange or an ETF instead of their own wallet, it's arguable whether they truly own the cryptocurrency. Notably, an ETF simply offers price exposure to Bitcoin without the investors buying actual Bitcoin. Moreover, Nakamoto had warned about the cost of intermediation increasing transaction costs, a problem that a Bitcoin ETF doesn't solve. Instead, it introduces management fees, with some issuers like Grayscale charging up to 1.5%.

Why the Excitement Over the Bitcoin ETF?

The excitement over the Bitcoin ETF is largely driven by price. The industry is largely susceptible to the fluctuations of token prices. When markets dip, venture capitalists lose interest and sponsorships and advertising budgets are negatively impacted. Customer-facing services struggle to attract new users. Additionally, the price of various altcoins tends to fluctuate with Bitcoin. This time, Bitcoin's rise seems to be heavily influenced by major financial institutions and the SEC, and the industry is not voicing many complaints over it.

Another reason for the excitement is the prospect of mainstream adoption. It is anticipated that the approval of spot ETFs will bring an influx of new investors who may not want to bother with setting up an account on a crypto exchange or creating a wallet on their phones or running a node on their home computers. Furthermore, the involvement of well-known institutions may alleviate fears associated with crypto fraud, potentially attracting more investors. Thanks to ETFs, the crypto community has enjoyed a few weeks of relatively positive media attention.

The Credibility Factor

Another significant aspect of the Bitcoin ETF is the credibility it brings to the table. The SEC's approval, after years of rejections over market manipulation fears, symbolizes a level of acceptance of the asset class by one of its toughest critics, SEC chair Gary Gensler. While ideally, the crypto industry should be independent of government interference, in reality, major developments in regulatory policy, such as those announced by Gensler, are closely watched by the crypto community.

Regardless of the apparent hostility towards the industry, which manifests as a lack of regulatory clarity and ongoing lawsuits against key industry players, the industry has continued to thrive and expand globally, especially in Asia. Despite the hurdles, the future of crypto requires some degree of government approval and Wall Street involvement. The future of crypto more likely resembles regulations-heavy jurisdictions like Japan, Hong Kong, and Singapore rather than the Wild West. Building a decentralized project is hard enough, but doing so in a bear market with hostile regulators, cautious investors, and wary consumers is even more challenging. The hope is that Wall Street's involvement will provide a much-needed stamp of credibility for the burgeoning field, allowing more crypto projects to flourish.

Edited by Jonathan Stoker