BTC spot-based exchange-traded funds (ETFs) are rumored to be close to approval by the U.S. Securities and Exchange Commission (SEC), a move that would complete the BTC token’s mission of abandoning all pretense of serving as peer-to-peer electronic cash.
The past few weeks have ignited hopes that the SEC is poised to finally approve the trading of BTC spot-based ETFs after years of rejecting applications seeking such approval. Last week, Fox Business sources claimed the SEC was expected to simultaneously greenlight several of the dozen or so pending ETF applications by January 10.
ETF shares mirror the rise and fall of specific products, be they stocks, bonds, commodities, or a stock market index, without requiring individual investors to acquire the asset the ETF represents. While futures-based BTC ETFs have existed for some time, interest in these products has so far been tepid, partly because of high management fees and the refusal of Grayscale Investments to allow shareholders to redeem their GBTC shares.
The prevailing theory is that spot-based ETFs will spur greater retail investor interest in digital assets by eliminating the occasionally tricky technical aspects of acquiring and self-storing tokens. ETFs also supposedly offer a greater sense of security by the fact that investors will be dealing with established Wall Street giants rather than some dodgy here-today-gone-later-today ‘crypto’ exchange.
Some of the companies that have submitted ETF applications—which include Blackrock, Fidelity, VanEck, and Invesco—met with SEC officials this week in a bid to clear up a few lingering stumbling blocks. Specifically, the SEC insisted that ETF issuers create and redeem new shares using cash rather than allow ‘in-kind’ transactions based on the fund’s underlying asset (i.e., BTC).
Fund managers and market-makers strongly prefer the simpler and quicker ‘in-kind’ method. There are also tax implications for those needing to sell BTC for cash to purchase ETF shares. But the SEC reportedly dug in its heels, forcing Blackrock et al. to amend their applications, take what they’re given for the moment, and worry about fighting for an ‘in-kind’ option further down the road.
Fox Business reporter Charles Gasparino tweeted that the SEC was having “a rare joint conference call” with ETF applicants on the ‘cash creation’ issue. His colleague Eleanor Terrett added that her sources were saying the SEC “asked issuers to remove all hints of in-kind redemptions from their filings.”
The sudden flurry of attention to this matter in the final week before Christmas has led some to conclude that SEC Chairman Gary Gensler may choose to approve the ETFs sooner than January 10. But Gensler, like the deity whose birthday we’re supposed to be celebrating, moves in mysterious ways, so who knows what will end up under the tree this year.
‘Crypto’ still chock-full of crooks
The ETF issue has given BTC maximalists new axes to grind against Gensler, under whose leadership the SEC has consistently rejected all spot-based ETF applications to date. However, a District of Columbia Circuit Court ruling in August forced the SEC to reconsider its stance, a ruling the SEC ultimately chose not to appeal.
There remains an outside chance that Gensler could surprise everyone by rejecting all applications again. Gensler told CNBC last week that there is still “far too much fraud and bad actors in the crypto field. There’s a lot of noncompliance, not only with the securities laws but other laws around any money laundering and protecting the public against bad actors there. And so I would note that this is a field where you still don’t have the fundamental information on many of these projects. And the intermediaries of the so-called crypto exchanges are commingling and doing things that we do not allow anywhere else in our financial system.”
The SEC’s previous denials of ETF applications cited the ease with which digital asset markets could be manipulated through wash trading, much of it done on the Binance exchange and with the Tether (USDT) stablecoin. While Binance has reached a punitive settlement with the U.S. Department of Justice (DOJ) and Tether has begrudgingly ‘onboarded’ U.S. federal authorities into its platform, there are always other law-flouting exchanges and stablecoin issuers who are more than willing to flout the rules if the returns are sufficiently lucrative.
BTC’s seeds of destruction were sown long ago
Anticipation of the ETF approvals has been credited with much of the steep rise in BTC’s fiat value over the past three months. The Coinbase (NASDAQ: COIN) exchange has also seen its share price rise fivefold this year—despite going nearly two years without turning a profit—partly due to its status as the designated custodian for most of the ETF applicants.
BTC maxis are positively giddy going into 2024, which they now predict will be a year to equal or exceed the 2021 value bubble that saw BTC peak around $69,000 that November. Besides the ETF juice, the next ‘halving’ event is expected to occur sometime in April, reducing the block rewards to just 3.125 BTC. Previous BTC halvings have sparked impressive bull runs—and equally impressive crashes once the FOMO wears off—so the Moon Boys are expecting to take one giant leap for ‘in-kind’ in 2024.
The ironies of the ETF hubbub appear lost on the maxis, who are now focused solely on BTC as ‘digital gold’ rather than on Bitcoin’s original goal of serving as trustless peer to peer electronic cash. This was the inevitable result of the protocol changes that lured BTC off the path of the original Bitcoin (now solely represented by the BSV blockchain and token) and left BTC a utility-free chain and a token good only for speculation.
Those protocol changes imposed severe bandwidth limitations on BTC’s main layer, part of a plot to force everyday transactions onto so-called Layer 2 ‘solutions’ such as Blockstream’s Lightning Network. But Lightning proved more problem than solution. When your transaction failure rate is so high that even Lightning proponents suggest using AI to map out the optimal path for success, Rune Goldberg would tell you this was too complex.
With all those headaches—and software vulnerabilities that even Lightning developers find shocking—it’s no wonder that Lightning is dying from disinterest. The number of ‘channels’ processing pseudo-BTC transactions on Lightning has declined by nearly one-fifth this year, while the total number of BTC tokens committed to this sidechain quagmire is dipping below 5,000. After all, who wants to lock up resources in a transaction ghost town when there’s gold in them thar tokens?
So, forget all you were told about Bitcoin’s early days. The maxis who once bragged that Bitcoin would free the world from the tyranny of large financial institutions are now championing Wall Street giants as their saviors. Those who fancied themselves financial revolutionaries have been exposed as just the latest iteration of the ‘get rich quick’ hordes. Up is down. Black is white. And bah is humbug.
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