Two weeks have passed since traditional financial markets began trading investment products tied to bitcoin, known as exchange-traded funds (ETFs). These ETFs allow everyday investors to easily bet on the cryptocurrency market, similar to buying and selling stocks on Wall Street. In the days following the approval from federal regulators, these ETFs have attracted nearly $2 billion in investments. However, according to Joel Khalili, a reporter for Wired who covers the crypto industry, it is unlikely that crypto purists have been investing in these ETFs.
Marketplace’s Meghan McCarty Carino spoke with Khalili about the early adopters of crypto, who he says prefer to stay on the fringes of the financial system. The conversation has been edited for clarity.
Khalili explains that the arrival of ETFs goes against the underlying ideology of bitcoin, which was originally intended to be a technology for direct peer-to-peer transactions, without the involvement of large Wall Street intermediaries. ETFs, on the other hand, are exclusively for financial speculation and are managed by big financial institutions. Users do not hold the actual bitcoin themselves, but rather invest in a representation of it. This means that ETF shares cannot be used for peer-to-peer payments.
McCarty Carino asks about the hassles and frictions of buying and storing bitcoin directly, to which Khalili explains that many people are hesitant to do business with crypto exchanges due to past incidents of fraud and hacking. Additionally, storing bitcoin in a self-managed wallet can be risky as there is no room for error – if the password or seed phrase is lost, the crypto is gone forever. This is known as self-custody, a term used by bitcoiners.
When asked about who is excited about the arrival of bitcoin ETFs, Khalili says that while some see it as a source of legitimacy and a way to attract more institutional investors, true bitcoin believers are not interested as they believe in direct ownership of the cryptocurrency. There is a belief that mainstream investment and cash entering the bitcoin system will drive up the price, but bitcoiners themselves will not be investing in ETFs for the reasons discussed.
McCarty Carino raises the question of whether this influx of mainstream investment could stabilize the volatile crypto market. Khalili explains that analysts believe it could have a stabilizing effect, but the excitement and hype leading up to the approval of ETFs actually caused a dip in the bitcoin price as people bought the rumor and sold the news.
The conversation then shifts to the current state of the crypto industry after a tumultuous couple of years. Khalili says that there is a sense of optimism following the trial of Sam Bankman-Fried, the founder of the collapsed crypto exchange FTX. Many believe that this is an opportunity for the industry to start fresh. The approval of ETFs has been a major topic of discussion among crypto circles and is seen as a cause for celebration.
To wrap up, McCarty Carino mentions some practical considerations when it comes to ETFs and bitcoin. While the blockchain is available 24/7, traditional investment firms and stock exchanges operate on a 9-to-5 schedule. This was evident when bitcoin’s value dropped over $1,000 during the first weekend after ETFs were introduced, as those who owned it directly or through a crypto broker could continue trading, while ETF holders had to wait for Wall Street to open.
In conclusion, while the arrival of bitcoin ETFs has created some philosophical tensions within the crypto community, it has also sparked practical considerations and discussions. The future of the crypto industry remains uncertain, but there is a sense of optimism and excitement surrounding the potential for mainstream adoption.
