According to market prognosticators, it is believed that a Bitcoin exchange-traded fund (ETF) will soon be introduced to Wall Street, which many believe would have a positive impact on the cryptocurrency industry. However, this belief is not universally held, as recent price rallies might suggest otherwise.
Analysts from CryptoQuant have suggested that the approval of a Bitcoin ETF, which investors have eagerly awaited for over a decade, would result in a flood of cash from institutions into the crypto space, subsequently driving up the price of Bitcoin significantly. However, this notion may or may not hold true. Some, like Hayden Hughes, co-founder of social-trading platform Alpha Impact, have argued that the approval of a Bitcoin ETF has already been factored into the market’s pricing, thus diminishing the potential for sustained substantial gains in price.
Nevertheless, even if the market capitalization and price of Bitcoin were to skyrocket, and the entire crypto industry were to flourish as a result, one must consider whether this would be advantageous. Privacy-focused Bitcoin enthusiasts have expressed concerns that such a product goes against the fundamental principles of Bitcoin. Experts, including those at Nym Technologies and Wasabi Wallet, have previously warned that Wall Street’s interest in the cryptocurrency could lead governments to impose restrictions, penalties, or taxes on crypto users. This is evident through the increasing focus on anti-money laundering (AML) procedures by lawmakers, as seen with prominent crypto platforms like Coinbase and Binance.
Others have contended that with the entry of Wall Street giants into the market, the cryptocurrency would become more centralized and correlated with traditional stocks. Bitcoin supporters have long hoped for the coin to decouple from securities. Bob Bodily, CEO of Ordinals marketplace Bioniq, expressed concerns that a Bitcoin ETF could undermine Bitcoin’s original promise of censorship resistance. He explained that mass adoption of Bitcoin ETFs would result in a substantial amount of Bitcoin being locked up within these funds, leading to high correlation with stocks, stock-like behavior, and predominantly central custodial ownership.
Bodily was referring to Bitcoin’s unique quality of allowing anyone to utilize the network and conduct transactions without being subject to government or authoritative interference. The idea is that anyone who can download Bitcoin wallet software, run a node, and complete transactions can do so without hindrance. However, if Bitcoin ETFs and centralized custodians become the predominant and perhaps the only recognized means for individuals to gain exposure to Bitcoin, users could eventually face bans from the network. Craig Raw, developer of the Bitcoin Sparrow Wallet, added that privacy and profitability do not always align. While cypherpunks advocate for private interactions, institutions prioritize their bottom line, and Raw noted that these goals may or may not align at times.
He explained that it is crucial for cypherpunks that individuals maintain their privacy in the tools, regardless of institutional adoption. Fortunately, such tools already exist in the Bitcoin and wider cryptocurrency sphere. For instance, there are applications like CoinJoin that people utilize to obscure Bitcoin transactions.
Currently, there are already tensions between privacy advocates within the crypto community and authorities. Last year, federal authorities prohibited U.S. citizens from using the Tornado Cash app, which is a “coin mixer” enabling users to conduct private transactions on the Ethereum network. In response, Coinbase, the largest cryptocurrency exchange in America, criticized the government’s rationale for the ban and has subsequently provided financial support for a lawsuit against the Treasury Department.
The notion that the entry of traditional finance into the crypto realm may not necessarily be advantageous is not a novel concept. As early as 2018, Caitlin Long, the CEO of Custodia Bank, expressed concerns that while such a product could benefit the industry, the financialization of the crypto world could have negative consequences if it results in an influx of liquidity from leveraged traders seeking quick, short-term gains. Consequently, this could prompt long-term holders to resist this trend by refraining from engaging with the financial system and keeping their coins outside of it.
Presently, analysts assert that, whether beneficial or detrimental, it is only a matter of time before a Bitcoin ETF is introduced to Wall Street. JP Morgan has even suggested that this could occur before the Christmas season. The launch of such a product is likely to result in a substantial inflow of funds into the crypto space. However, the question remains as to whether Bitcoin will retain its original characteristics amidst this development.