Bitcoin ETFs will make greater fools of us all.

Reuters: US SEC approves bitcoin ETFs in watershed for crypto market

WASHINGTON/NEW YORK, Jan 10 (Reuters) - The U.S. securities regulator on Wednesday approved the first U.S.-listed exchange traded funds (ETFs) to track bitcoin, its Chair Gary Gensler said, in a watershed for the world's largest cryptocurrency and the broader crypto industry.

The U.S. Securities and Exchange Commission approved 11 applications, including from BlackRock (BLK.N), Ark Investments/21Shares (ABTC.S), Fidelity, Invesco (IVZ.N) and VanEck, among others, according to a notice on its website. Some products are expected to begin trading as early as Thursday, kicking off a fierce competition for market share.

Investing in a Bitcoin ETF is not the same as investing in Bitcoin. The ETF tracks the price of Bitcoin, but the investor holds shares in the fund, not the cryptocurrency itself. In simple terms, an ETF is a type of security that tracks an index, commodity, or basket of assets and can be bought and sold on stock exchanges like a regular stock. The introduction of Bitcoin ETFs means that retail investors can now invest in Bitcoin without the complexities of handling the cryptocurrency itself. To the faithful, this development is seen as a bridge between TradFi and DeFi.

The most touted benefit of Bitcoin ETFs is the potential for greater market stability. By bringing Bitcoin into the regulated sphere of traditional finance, there's an expectation that it will gain legitimacy among more conservative investors. This could, in theory, lead to a more stable market as the influx of institutional money might temper the wild speculations and volatility associated with Bitcoin.

But this is where the first cracks in the narrative begin to show. Bitcoin's inherent volatility doesn't stem merely from its unregulated nature but also from its limited supply and varied use cases. Its price is driven by a complex mix of factors, including technological developments, regulatory news, and market sentiment. Despite a façade of respectability, an ETF does not shield investors from underlying volatility.

Perhaps more importantly, within the cryptocurrency sphere, the buzz surrounding Bitcoin ETFs is entirely fueled by the "greater fool" theory, a market principle suggesting that the value of an asset is determined not by its intrinsic value but by the collective belief that someone else will pay more for it in the future.

In the case of Bitcoin ETFs, any incumbent excitement is not rooted in the belief that crypto-based financial products will stabilise the market or signal a newfound legitimacy for Bitcoin. It's driven by the anticipation that ETFs will attract a new wave of less crypto-savvy investors – the so-called 'greater fools' – who, driven by the allure of mainstream financial products and the hype surrounding cryptocurrencies, will enter the market at higher prices. This influx is expected to drive up Bitcoin prices, offering early adopters and traders the opportunity to sell at a profit. It's a speculative frenzy, where the focus is less on the fundamentals of Bitcoin and more on the potential for short-term gains. And once again, the speculative aspect of the cryptocurrency market overshadows any of its promised technological and financial innovations.

@Westenberg logo
Subscribe to @Westenberg and never miss a post.