In recent months, the excitement surrounding the possibility of a bitcoin exchange-traded fund (ETF) has surged in tandem with its rising price. However, this enthusiasm is far from universal. Some are apprehensive that the introduction of a spot bitcoin ETF could expose Bitcoin (BTC) to vulnerabilities, reminiscent of the gold and silver markets. Approving such an ETF may inadvertently open doors to manipulative practices akin to those alleged in the precious metals sector.
With the Imminent Arrival of a Physically-Backed Bitcoin ETF, Skeptics Foresee Risks Resembling Gold Market Manipulation
On the surface, a tangible bitcoin ETF might appear to be a boon for the growth and valuation of the cryptocurrency. Nevertheless, there are genuine concerns that it could follow in the footsteps of gold and silver ETFs, employing fictional BTC supplies as leverage for futures trading. The rapid surges in Bitcoin’s price could potentially be mitigated by releasing this fabricated supply into the market. Importantly, this would not affect the actual supply of Bitcoin itself. The operators of the ETF could thus leverage positions that far exceed their verifiable assets, exerting influence on BTC prices.
On October 16, 2023, Josef Tětek, a BTC analyst at Trezor, expressed the view that an “ETF represents the fiatization of bitcoin.” Tětek argues that in the long run, an ETF may not necessarily benefit Bitcoin. He firmly stated, “[A] bitcoin ETF could be one of the most detrimental developments for the adoption of Bitcoin. It essentially undermines self-custody and replaces genuine utility (whether as a Medium of Exchange or Store of Value) with speculative price behavior.”
Tětek elaborated on his perspective:
“ETFs are a more significant concern than exchanges because, with exchanges, we can at least trigger bank runs and scrutinize their financial stability. If they are running a paper bitcoin Ponzi scheme, they are likely to collapse before growing too large (as seen with FTX, Blockfi, etc.).”
The inception of the first gold exchange-traded product (ETP) dates back to 1961 when it functioned as a closed-end fund. By 1983, it became accessible to a broader range of investors. Finally, in 1986, after two decades of trading on the Toronto Stock Exchange, it made its debut on the U.S. Stock Exchange. In March 2003, the first physical gold ETF, known as “Gold Bullion Securities,” was listed. Since these introductions, numerous accusations have been leveled against ETFs and financial giants for allegedly manipulating precious metal prices.
This suspicion carries over to the realm of a potential bitcoin ETF, where a 100,000 BTC ETF could potentially be overshadowed by unchecked paper assets. Such an ETF might conveniently leverage fictitious supplies, assisting corporations in hedging significant derivatives bets. When prices surge abruptly, this illusory supply might be deployed to stabilize the market. Gold has historically been a target of such practices. For example, two former JPMorgan metals traders were convicted of fraud last year for allegedly manipulating the gold market, among other precious metals.
In 2020, JPMorgan settled U.S. allegations of manipulating precious metals futures prices from 2008 to 2016. Silver has also faced accusations of similar manipulation, with major financial institutions often accused of using short positions to suppress silver prices. These underhanded tactics in the precious metals market have been extensively documented in research papers and exposés. There is a growing concern that the decentralized world of cryptocurrencies could encounter similar challenges.
One individual on the social media platform X articulated their concerns, stating, “A spot bitcoin ETF will be detrimental because it will allow Blackrock to acquire and control bitcoin using other people’s capital. They will gain a position they did not earn. The implications for regular investors could be severe. We do not want Mr. Fink at our table.”
While bitcoin ETFs may democratize access to the cryptocurrency, critics argue that they can obscure the leverage and speculative activities from regulatory oversight and investors. Similar to precious metals ETFs, price discovery mechanisms may become distorted. Another bitcoin enthusiast on social media this week commented, “The best State attack on bitcoin ever – An ETF.” Another user on X echoed this sentiment, envisioning a bleak future for decentralized cryptocurrencies.
“The approval of a spot ETF may benefit short-term traders, leading to a surge in price,” the individual posted. “However, it may not bode well for small retail bitcoin investors, as the true price level may become obscured. Once major institutions step in, Bitcoin could become a political pawn.” However, not everyone shares this view. Another X user argued that portraying an ETF as a villain is unfounded, emphasizing that the inherent decentralized nature of bitcoin will ultimately prevail.
“Bitcoin ETFs are not detrimental to bitcoin,” the person humorously remarked. “Those who assert otherwise misunderstand that bitcoin is fundamentally different from gold. Bitcoin cannot be controlled in the long run. Let Wall Street create as many ETFs as they wish; they will never gain control over bitcoin.”
What are your thoughts regarding the critics’ concerns about a spot bitcoin ETF? Do you believe these concerns hold merit? Feel free to share your perspectives on this topic in the comments section below.
Frequently Asked Questions (FAQs) about Bitcoin ETF Concerns
What are the concerns raised by critics about a Bitcoin ETF?
Critics express concerns that a Bitcoin ETF could resemble precious metal manipulation seen in gold and silver markets. They fear it may expose Bitcoin to vulnerabilities, such as leveraging fictional BTC supplies for futures trading, potentially distorting price discovery mechanisms and undermining the cryptocurrency’s integrity.
How could a Bitcoin ETF potentially manipulate the market?
Critics argue that a Bitcoin ETF could leverage fictitious supplies, allowing entities to hedge significant derivatives bets. In times of rapid price surges, this illusory supply might be deployed to stabilize prices, similar to alleged practices in the precious metals market.
What is Josef Tětek’s viewpoint on a Bitcoin ETF?
Josef Tětek, a BTC analyst at Trezor, believes that a Bitcoin ETF represents the “fiatization of bitcoin” and may not be beneficial for long-term BTC adoption. He argues that it undermines self-custody and replaces genuine utility with speculative price behavior.
How have precious metal markets been manipulated in the past?
Historically, precious metal markets, particularly gold and silver, have faced allegations of manipulation by major financial entities. These accusations include the use of short positions to suppress prices and the manipulation of futures prices. Some individuals have faced legal consequences for their involvement in such practices.
What are the potential consequences of a Bitcoin ETF for regular investors?
Critics warn that a Bitcoin ETF could allow major institutions to acquire and control Bitcoin with other people’s capital, potentially disadvantaging small retail Bitcoin investors. They fear that the true price of Bitcoin may become obscured as large institutions enter the market, turning Bitcoin into a political pawn.
No, there is a divergence of opinions regarding Bitcoin ETFs. While critics express concerns about potential manipulation and market distortions, some individuals believe that Bitcoin’s inherent decentralized nature will ultimately prevail and that ETFs are not detrimental to Bitcoin in the long run.
More about Bitcoin ETF Concerns
- Bitcoin ETFs: What You Need to Know – An overview of Bitcoin ETFs and their potential impact on the cryptocurrency market.
- Precious Metals Manipulation: A Historical Perspective – A historical analysis of alleged manipulation in the precious metals market.
- JPMorgan to Pay $920 Million in Manipulation Probe – Information on JPMorgan’s settlement related to precious metals manipulation allegations.
- The Case for Bitcoin ETFs – A different perspective on the benefits of Bitcoin ETFs for investors.
- Bitcoin’s Decentralization: Myths and Truths – An exploration of Bitcoin’s decentralization and its implications for the cryptocurrency’s resilience.
- Understanding the Impact of Bitcoin ETFs – An article discussing the potential impact of Bitcoin ETFs on the crypto market.