ETF approval for bitcoin – the not so naked emperor

As a Bitcoin investor responding to the critique presented by Ulrich Bindseil and Jürgen Schaaf, it’s essential to offer a balanced and well-supported counterargument that not only addresses the concerns raised but also highlights the factual advancements and potential of Bitcoin within the financial ecosystem.

So what do they claim in their article that was posted on the ECB blog? According to the duo the price of Bitcoin does not reflect its long-term viability. It is lacking in economic fundamentals and devoid of a clear fair value, making reliable predictions unfeasible. They continue by saying that the absence of a “proof of price” within a speculative bubble merely underscores the influence of Bitcoin advocates rather than its intrinsic value. They conclude that the capitalization of the market serves as a measure of the potential societal harm pending the eventual collapse of this fragile structure, and they add that it’s crucial for regulatory bodies to exercise vigilance to safeguard the community against financial crimes, including money laundering and cyber-related offenses, prevent financial losses among the less financially savvy, and mitigate significant environmental harm.

Firstly, the assertion that “Bitcoin has failed on the promise to be a global decentralised digital currency and is still hardly used for legitimate transfers” overlooks the significant strides in Bitcoin’s adoption and utility. The number of active Bitcoin addresses, averaging around 1 million, along with over 41 million wallets holding more than $1 worth of BTC, signifies a robust and growing user base​​. The anticipation of Bitcoin ETFs and the upcoming halving event are poised to further bolster adoption, potentially driving Bitcoin’s price to new heights​​.

The approval of a Bitcoin spot ETF by the SEC is not a trivial development; it represents a significant step towards mainstream acceptance and offers both retail and institutional investors a regulated means to gain exposure to Bitcoin without the complexities of direct ownership. This move, coupled with the fact that Bitcoin’s ecosystem, institutional adoption, and integration with artificial intelligence and real-world assets have been identified as key themes for 2024, underscores the cryptocurrency’s resilience and growing significance in the financial landscape​​.

Technological innovations, particularly in scaling solutions such as Layer-2 rollups, have notably enhanced Bitcoin’s utility and efficiency. The development and adoption of these technologies address some of the earlier criticisms regarding Bitcoin’s scalability and transaction speeds, showcasing the ecosystem’s commitment to improvement and innovation​​.

Furthermore, the growing interest in tokenized real-world assets (RWA) and the projected expansion of the on-chain RWA market to up to $16 trillion by 2030 highlight the potential for integrating traditional financial assets with blockchain technology. This interest is supported by institutional investors and is indicative of the broader financial industry’s recognition of the value proposition offered by Bitcoin and other cryptocurrencies​​.

The upcoming Bitcoin halving event in 2024, which is expected to reduce the block reward and consequently the new supply of Bitcoin, is commonly seen as a bullish signal for the cryptocurrency’s price. Additionally, the potential approval of Bitcoin spot ETFs by the SEC could attract significant institutional funds into the market, further underlining Bitcoin’s maturing status as a legitimate asset class​​.

While Bindseil and Schaaf’s analysis presents valid concerns regarding Bitcoin’s environmental impact and its use in illicit activities, the broader context reveals a more nuanced picture. Bitcoin’s growing adoption, institutional interest, and continuous technological advancements, coupled with the positive outlook for regulatory developments and the adoption of cleaner energy sources for mining, contribute to its evolving perception as a valuable digital store of value and an innovative financial asset. These aspects underscore the ongoing transformation of the financial ecosystem and the integral role Bitcoin is poised to play in it.