Post-ETF Era: The Impending Power Struggle in Bitcoin

• Bitcoin ETF Approvals: A New Era for Institutional Involvement
• The Crypto World and the Business Establishment: A Tense Relationship
• The Impact of Institutional Participation on Bitcoin's Power Dynamics
• Complexities and Predictabilities in Bitcoin's Power Dynamics
• The New York Agreement as a Reference Point
• The New Whales and the Future of Bitcoin

Bitcoin ETF Approvals: A New Era for Institutional Involvement

Last week ushered in a new era for Bitcoin$42,260 -0.64% and giant institutions like BlackRock and Goldman Sachs, as they can now enter the Bitcoin market following the approval of spot ETFs. This could result in a shift in preferences towards Bitcoin that is mined using green energy or that is free from any criminal associations. This could pave the way for a struggle similar to the contentious Blocksize Wars that began in 2017.

The Crypto World and the Business Establishment: A Tense Relationship

This week's World Economic Forum in Switzerland saw a sizable crypto community presence, underscoring a particular tension. The industry wants acceptance from the business establishment, but there are concerns that this engagement might dilute the disruptive, revolutionary ethos of cryptocurrency.

Money Reimagined, a weekly newsletter that explores the technological, economic, and social events and trends that redefine our relationship with money and transform the global financial system, has noted this tension. With 2024 shaping up as the year that traditional finance (TradFi) arrives, this tension seems particularly pronounced. With the Securities and Exchange Commission's long-awaited approval of Bitcoin exchange-traded funds (ETFs), major asset managers like BlackRock and Fidelity, as well as big banks like Goldman Sachs and JP Morgan, can now participate in the Bitcoin market.

The Impact of Institutional Participation on Bitcoin's Power Dynamics

One question that arises with this development is how these institutions' participation might impact the power dynamics within Bitcoin itself. Will Bitcoin maxis and degens, who value censorship resistance and decentralization, see their influence over Bitcoin diminish as these large, regulated entities start to engage? Could BlackRock, Goldman or JP Morgan demand to purchase only coins mined with renewable energy, or clean coins with no shady past? And could their demand for Bitcoin be so significant that it changes the behavior of others, such as miners, and alters the very nature of Bitcoin?

Complexities and Predictabilities in Bitcoin's Power Dynamics

These are complex questions with no clear answers at this point. The unpredictability surrounding these questions stems from the intricate power dynamics within Bitcoin's highly decentralized, diverse ecosystem. This complexity is one facet of Bitcoin's appeal, leading to a belief that these Wall Street giants will not significantly alter it.

The New York Agreement as a Reference Point

A reference point for this prediction is the outcome of the so-called Block Size Wars of 2017. During this time, 58 crypto businesses supported a proposed hard fork upgrade in Bitcoin's Core code that would increase the memory for each block. The aim was to reduce network logjams, allowing these businesses to process more transactions and earn more fees. However, a core group of developers and users opposed this move, fearing that it would lead to a more centralized network.

The New Whales and the Future of Bitcoin

Post-ETF newcomers will likely own a significant portion of Bitcoin, leading some to question if Bitcoin can continue to be driven by the little guys. It is estimated that the demand for Bitcoin ETFs could reach $100 billion, representing roughly an eighth of the total market cap. After adjusting for dormant coins, we find that ETF demand constitutes about 17% of the active Bitcoin market. This could mean that these institutions could have significant influence, making a 2017-like UASF harder to pull off. However, Wall Street will not be the only major holder of Bitcoin. With around 1,500 so-called whale addresses holding more than 1,000 Bitcoin each, Bitcoin OGs still have significant influence.

If a battle for the soul of Bitcoin arises, it promises to be an intense fight, reminiscent of the hard-fought Blocksize Wars.

Edited by Jonathan Stoker