Billions of dollars have flowed into the United States spot Bitcoin ETFs, but some crypto executives say the instruments come as a departure from crypto ideals. Money flowed into ETFs in the first week of trading.
But despite their massive popularity, some of the crypto executives allege these instruments violate the ideals that form the foundations of crypto.
The US Securities and Exchange Commission approved many spot Bitcoin ETFs for the first time on January 10, 2024, and they started trading on January 11. Trading activity showed there was a large pent-up demand for these products, as they recorded over $10 billion in trading volume over the first seven days. Moreover, the Bitcoin ETF market saw at least $782 million of net inflows of capital in the first two days of trading.
But despite the proven popularity of the financial instruments, some of the executives at top crypto firms are urging investors to proceed with caution, alleging that ETFs might result in greater centralization in the crypto sector and will not be required in the future anyway.
Executives Have Their Say On Bitcoin ETFs
Reporters spoke to Andy Bromberg, CEO of wallet developer Eco, who alleged that ETFs might give traditional financial institutions excessive influence over the market. Bromberg stated:
“You are when you buy into one of these Bitcoin ETFs, giving Wall Street money to buy Bitcoin with, [and] they own the Bitcoin, and you own a piece of paper that says you have a share in this.”
He alleged that it was “stepping away from the ideals” that Bitcoin was founded and supported upon:
“There is a world where, if all people entering the industry care about and think about is price and not what this technology actually does, they’ll buy into these Bitcoin ETFs. And one day, these Wall Street institutions will own 70% of the Bitcoin in circulation […] I’m not so sure that is the thing that we were trying to build.”
Bromberg called Bitcoin an “incredible thing” but claimed that the ETFs are “Bitcoin with all of the incredible things taken away from it and just leaving the price.”
Related:The Wait is Over: Spot Bitcoin ETFs Now Live for Trading
Despite the criticism, Bromberg alleged that he was happy that the ETFs were approved. Reiterating SEC Commissioner Hester Peirce, he said the decision gives Americans “the right to express their opinions on Bitcoin within financial markets.” Nevertheless, he insisted that the crypto community is facing a critical test after the ETF approvals.
In case crypto users cannot help new investors “take one more step” into self-custody of their funds, “we’re going to end up with a Wall Street-owned financialized asset, same as everything else, and it will have all been for nought.”
When asked about a solution to the issue, Bromberg alleged that developers must:
“Build products that are as easy as investing in the Bitcoin ETF but that allow people to have custody of their own assets and fulfill the promise of crypto.”
The chief technology officer for the Suku wallet development team, Lucas Henning, also criticized the Bitcoin ETFs. Henning alleged that ETFs will inevitably fail to get the attention of the public for a long time since most protocols and cryptos other than Bitcoin simply will not get SEC approval to be put into an exchange-traded fund. Henning said:
“As soon as one thing is done, like the Bitcoin ETF is done right now, people tend to ask the question, ‘What is next?’ And now what is next is potentially the Ethereum ETF. If that gets completed, people are naturally going to ask the question, ‘Are we going to get access to Ethereum DeFi protocols?’ Are we going to get access to those sweet dividends and interest rates and everything possible? And the answer is probably going to be ‘No.’”
Related:Spot Bitcoin ETFs Add Another 10,600 BTC On Day 5
Did The SEC Approve The ETF Due To The Legal Battle?
Henning insisted that the SEC just approved the Bitcoin ETFs after a long legal battle, and even then, the regulator quickly assured investors that other cryptos would not essentially get the same treatment. According to Henning, this suggests that most of the yield in the crypto space will not be available via traditional brokerage accounts.
Henning also insisted that self-custodying the crypto assets will soon become easier than ever before, mostly within the Ethereum network, and this will reduce the need for more ETFs.
He referenced Ethereum Improvement Proposal (EIP) 7212, which will enable on-chain signatures using secp256r1 elliptic curve (also known as “R1”) cryptography. Based on a statement by Henning, most facial recognition software utilizes R1 cryptography, while most of the other blockchains use “K1” instead.
For that reason, there is no way now to sign Ethereum transactions using a face scan or any other biometric data.
Nevertheless, once EIP-7212 is installed in Ethereum layer 2s, users can sign transactions directly with their mobile devices using a face scan without needing to store seed words or utilize a trusted intermediary to countersign the transactions.
As A result, self-custody wallets will become as easy to utilize as brokerage accounts. Henning claimed:
“We’re going to see wallets, and we’re going to see crypto apps that are built for [non-crypto native] users, where you’re not even going to realize that you’re actually using crypto.”
In his opinion, the “wallet paradigm shift” will reduce the appeal of crypto ETFs since the users will no longer need the exchange-traded funds to custody their cryptocurrency.
Other experts in the sector have also commented on ETFs, with some alleging that these funds represent a ‘revolutionary change,’ while others say they are more of a ‘dud.’
