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Although the new year has just begun, we are already seeing within the crypto industry asking Hollywood screenwriters, “Based on actual events.The Securities and Exchange Commission (SEC), which has been primarily responsible for most of the drama in this area, is now in print itself for playing a key role in destroying promised investor wealth. He can certainly be proud of his Golden Star Award for the film. protect. While there are certainly merits in debating and opposing the introduction of certain investment products, the failure to implement basic social media security features has led to misinformation, costing around $220 million in the process. Destroying the value of significant investors is borderline criminal and absolutely unacceptable. Government agencies that impose published words as the only truth to be considered must be held accountable for this type of negligence. If basic best practices are ignored, privacy concerns, security risks and threats to anti-money laundering (AML) agreements make it hard to vigorously oppose blockchain technology and its growing array of investment products. you can’t.
The known risks of cryptocurrencies are ubiquitous and should always be at the forefront of technology development. However, that’s a topic for another day.
Today, I would like to focus on the SEC’s approval of Bitcoin Exchange Traded Funds (ETFs), which in retrospect seems inevitable, and what this means for blockchain and Bitcoin. In summary, an ETF is a type of investment vehicle that tracks an index (i.e., price) of a collection of securities that the fund comprises. This pool can include stocks, bonds, or commodities, depending on the purpose of the instrument. Exchange-traded funds have several important characteristics that make them interesting to institutional and individual investors, including liquidity, diversification, low costs, transparency, and tax efficiency.
Bitcoin TradFi Adoption
The concept of ETF is very similar to Bitcoin. Fund issuers (BlackRock, Ark Invest, Grayscale, etc.) buy an underlying asset (in this case Bitcoin), create a fund to represent the underlying asset, and track it through an index. The approval of such products on traditional financial markets (New York Stock Exchange, Nasdaq, etc.) allows investors to gain exposure to Bitcoin in the US without actually owning the cryptocurrency. Now it looks like this. This removes a major barrier to entry: the complexity of purchasing, storing, and managing digital currencies. Additionally, Bitcoin ETFs establish a new layer of regulatory trust for potential investors who previously considered holding virtual tokens too risky.
With newfound legitimacy within Traditional Finance (TradFi), Bitcoin has many new opportunities at its disposal, which could benefit the entire blockchain industry. The potential (and expected) inflow of funds could not only increase demand for rare digital assets, but also stimulate further interest from institutional and retail investors in the blockchain industry as a whole. This will certainly lead to further development of blockchain technology, data privacy, data security, and regulatory frameworks, as well as fostering growth and adoption.
critical approach
Since Bitcoin was founded on the principle of replacing the current financial system, an argument must be made that it should not be traded within traditional markets in the first place. While that is true, Bitcoin is not powerful enough to sustainably replace current market dynamics. The agricultural revolution didn’t happen overnight either. Rather, it happened gradually over several thousand years. However, looking at the current adoption curve, we can confidently infer that Bitcoin may have an advantage in the timeline compared to advances in agriculture. With that in mind, there are significant benefits to integrating Bitcoin into traditional finance. Exposure, trust and familiarity should not be underestimated when driving the adoption of digital assets, especially when they have the potential to be lucrative as a store of value.
However, it should be noted that for an asset valued at nearly $1 trillion in market capitalization, it does not have a long track record of 15 years since its establishment. This involves significant risks for all stakeholders and investors. Anyone who has been exposed to decentralized finance knows about the ever-looming risks associated with blockchain technology, posed by hackers, regulatory or government restrictions, or the simple misuse of critical access codes (or you should know). Trusting an institution because of its track record does not automatically guarantee that the institution will be able to store your seed phrase and private key information over time (let alone keep it safe from hackers). Consider how difficult it is to hand over important information and tasks from a departing employee to a new employee.
On a more technical level, tracking highly volatile assets can lead to reporting errors, inaccurate asset valuations, and, in the worst case scenario, liquidation for those who dare to engage in leveraged trading. Additionally, concerns about possible market manipulation should also be discussed and taken seriously. When observing short time frame charts, there are countless examples where prices move up and down by double digit percentages. The relative newness of the Bitcoin and cryptocurrency markets, combined with their unregulated status in many jurisdictions, has increased concerns about the potential for manipulation to affect both the ETF and underlying asset prices.
Vulnerable Bitcoin ETF Conviction
Despite positive arguments for Bitcoin ETFs to increase capital inflows and blockchain visibility, Bitcoin ETFs are not an essential product to drive adoption. Yes, this curve will probably accelerate further. But from a purely ideological perspective, ETFs fundamentally oppose the purpose of blockchain and decentralized finance. Growing frustration with the current financial system has led us to an alternative that allows us to take responsibility for our own finances and make decisions that suit our risk profile. Bitcoin ETFs return that decision-making power to financial institutions, and so far, Prohibit owning ETFs in the first place. That raises custody issues. If you don’t own any actual Bitcoin, just an exchange-traded fund, and something happens to your asset fund manager, the government will take regulatory action against your Bitcoin ETF and seize your holdings. What if an apocalyptic scenario occurs that I can’t even imagine? right now? The point is, wouldn’t you sleep much better at night if you owned physical Bitcoin? You can live a borderless lifestyle without losing access to the wealth you’ve built over time (though you don’t have to, it’s nice to have the option). Most importantly, don’t rely on others or pay fees on a regular basis. management your portfolio. It’s not that difficult to learn how to buy Bitcoin on a centralized exchange (Binance, Coinbase, KuCoin, etc.) and move it to a hardware wallet to store it. There are lots of step-by-step guides on the internet, so that’s no longer an excuse. It’s just a matter of your determination to take financial responsibility for yourself and take appropriate security measures to keep your keys and codes safe. A small effort to eliminate numerous third-party disputes and cyclical fee structures. We need to learn that outsourcing financial responsibilities is not the norm. As with personal hygiene, the key elements should start and remain at home.
lastly
While it is understandable why many crypto enthusiasts would welcome the launch of a Bitcoin ETF in the US, the long-term benefits are questionable. Potential capital inflows could spread across the cryptocurrency industry, facilitating further development and expansion of technological advances that are critical for our society to thrive and address climate change, social injustice, poverty, etc. there is. But while this outlook may be promising, Bitcoin itself is primarily, and most importantly, a medium for storing value.
Of course, just as there are people who trade gold and silver, there will always be individuals who want to trade with Bitcoin. However, if I could get my hands on actual gold bars, I would buy that instead of the ETF version. Bitcoin does not have such problems. If you want to hold your Bitcoin for long-term store of value, you can do it directly without relying on a third party. That’s the whole point of Bitcoin in the first place. Therefore, it seems illogical that this particular financial instrument, the Bitcoin ETF, will remain a major player in the long term. That being said, this is a great marketing strategy that helps your product gain short-term awareness and adoption without a marketing campaign (let alone a budget).
It will be interesting to observe the evolution and development of events related to Bitcoin, its ETF version, blockchain technology, and traditional financial markets. Perhaps things will turn out quite differently than expected. They usually do. If you would like to join the discussion on this topic or any other financial discussion, we welcome you with open arms to our Discord server.
thank you for reading.
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