Love the article. I think you leave out a much bigger story which is the Fed's holding up Custodia's application for two years. Had Custodia & Kraken been allowed to gain access to Fed window they would have on boarded an insane amount of institutional capital in 2020 and 2021 before the blowups. And the fact that Custodia intends to offer a stable coin and do no lending means it will be THE FIRST BANK IN THE US TO NOT DO FRACTIONAL RESERVE LENDING. That is huge. Instead of "Don't Be Evil" their business model is "Can't be evil." In addition, the state regulatory scheme for digital assets gives customers a bailment. {Bailments are when you give your car keys to the parking attendant.] THAT IS ANOTHER EARTH SHATTERING WAY OF TREATING FINANCIAL ASSETS. No rehypothecation. THAT IS THE REAL THREAT AND THE FED KNOWS IT. Had BlockFi or Celcius been based in WY they would have had to treat their customers digital assets as bailments. In bankruptcy, if those digital assets were bailments, then THE CUSTOMERS GET THEIR DIGITAL ASSETS BACK FIRST. The lenders and equity holders come after. And the suit Custodia has against the Fed is the first time the Fed has ever lost a case of this type. This is the most interesting story in bitcoin BY FAR and no one is covering it.
I think SEC's denial includes misinformed arguments. In my opinion, and to an extent of my knowledge, points (3) and (4) are not correct:
"(3) hacking of the bitcoin network and trading platforms, (4) malicious control of the bitcoin network"
In Bitcoin (or any other PoW network, unlike PoS), controlling big amounts of tokens (BTC) does NOT allow for manipulating the *network* (network, not price) nor it allows for "hacking" it.
The disagreements among commentators and analysts seem to stem an acceptance of the norm and potential for the future.
BTC network and BTC coins are the closest humans have come to pure monetary premium - the language of trade/value. It is secured by literal energy (electricity via asics) and is transparent and auditable. It is gold without the cumbersome physicality and necessity for custodians. It's a bond without requiring the trust of the issuer.
Our current system is primarily sovereign debt collateral. The main problem is, it is not auditable and can be altered by central entities. Commercial lending requires both reserves (cash) and collateral (e.g. treasuries). If/when btc begins to replace the treasuries in the collateral/asset side of the ledger, that is when we begin to experience truer form of free trade. Transparent, scarce, transferable, auditable, decentralized collateral. I'm excited for that future.
It should be (doesn't mean it will be) quite obvious to any critical thinkers with even an average level of intelligence that if the highest level of decision-makers (e.g. Gary Gensler, Jerome Powell) in FedGov or MICIMATT (Military Industrial Congressional Intelligence Media Academic Think Tank) and in the vastly corrupt nation-state wrongly called "The United States of America" are against legitimate challenges to their hoax and scam called "the dollar" and its world reserve currency status, then it must be seriously considered. Everything FedGov and all its tentacles does is wrong and rooted in evil. Everything they are for, we should be against and vice-versa. Bitcoin is on the side of Good; FedGov is Evil. In this epic battle, in the end Good wins and Evil loses.
I dont get your point at all... explain why any bitcoin maxi would urgently need spot ETF? the term bitcoin maxi has been totally diluted at this point
I was initially introduced to the Doomberg world a couple of days ago, after mentioning Bitcoin to a newly introduced friend at a dinner. She said she was starting a new news service specializing in articles based on researched data - i.e. real news. I of course lauded this, and wished her well. After listening to Doomberg's assessment of the farmer's plight on George Gammon (should read "food industry's plight" to deflect any sympathy given to these corporations that invoke the "golly gee, Farmer Fred pathos), I lent some credence to his / her/ their research. HOWEVER, the bitcoin article went a long way to dispelling the initial positive view. The SEC and their minions are an echo chamber of the robbery forest, and have no skin in the game. They are not responsible for the harm their policies cause to anyone, and have been the stewards of an economic ship that is running aground. The vast majority of readers do not read the comments, I do. The USD is a Ponzi scheme - bitcoin is most assuredly not.
The fiat diagram makes sense but I don’t understand how it would be different if Gold took the place of Bitcoin in the diagram—or really anything else either. Everything translates into and out of fiat currency. Why aren’t those pump and dump schemes too? What am I missing, here?
I think Gensler's 7 reasons for not approving a spot Bitcoin ETF are disingenuous. Wouldn't most of these reasons also apply to a futures ETF? If so, then why did he approve a futures ETF? If it is true that there is "fraud and manipulation in the bitcoin spot market," then that would also affect the price of a futures ETF just as it would a spot ETF.
I feel like Doomberg speaks and writes a lot of common sense, but this just felt like he was trying to point fingers a bit too much at very clear and known risks in the crypto/bitcoin market.
You might think those risks are too large for the average person to have access to a spot bitcoin ETF, but most actually mirror many similar risks seen in other assets and markets.
If you think that equities/commodities don't have wash trading, dominant players manipulating prices, hacks of third party platforms, malicious control over systems/networks, trading based on material/non public information, and much more, then I don't know what to say.
Also, the idea that Gary Gensler understands how bitcoin's markets and crypto markets function, just because he taught a course about Blockchain/money at MIT is... surprisingly foolish coming from Doomberg.
I normally understand your articles (most of which are great) on the first pass, but I've read this one several times and I don't get your point. Maybe I'm just dense.
I own gold ETFs and I don't expect them to generate more fiat currency than I put in. Part of the fee to own the ETF pays for storage costs. Kind of like mining costs for bitcoin. The fund holds gold in my name and if the price of gold stays constant, my storage costs would eat up the value of the gold I'm holding. That's just one example
I'm ok with that because I view gold as insurance against central bank idiocy. I think some bitcoin investors think the same way. I don't view my fire insurance premiums as 'wasted' because I'm not getting a return on my 'investment'. I'm happy everyday that it hasn't paid off and I have a place to sleep.
I understand how bitcoin works, it's just not for me. I don't think people who do are idiots, they just have a different perspective than I do.
Maybe we're all missing your point and the article needs a followup?
Doomberg has some great content, but this is nonsense. This is actually very contradictory, maybe even hypocritical, to the mission of Doomberg as I see it, to educate people on the reality of how things work versus the narratives central planners portray.
The narrative of the SEC is to "protect" the investor. However, Doomberg knows very well that really what the SEC does is protect the wealthy and Wall Street's interests only. Bitcoin is the antithesis of protecting big banks and Wall Street. I expect more from Doomberg and expected an article explaining this. I'll do it for you and for readers who hopefully read comments.
All the securities markets are rife with manipulation: big banks depressing prices as they see fit, stock buy backs, massive insider trading that never gets caught, central planners and law makers in congress profiting millions of dollars because they know what policy changes are coming, massive actual Ponzi schemes like Madoff, mass casualties of publicly traded companies like Enron, government bailouts from printed fiat that burden citizens for decades into the future, accredited investor law that prohibits responsible retail investors from wealth building in private markets, changing rules when retail investors crush hedge funds to protect those hedge funds (Robinhood, London Metal Exchange), "smart" money is allowed to trade after hours.. the list goes on. Regulated markets are bloated with rent-seekers and intermediaries that take wealth from people who actually need it. This financial genocide of common citizens is what the digital asset market aims to correct.
The "regulated" markets have caused more pain and repress more people from prosperity than bitcoin ever has or ever will. The biggest Ponzi scheme the world has ever seen is the US dollar, which regulated security markets are denominated in. It perpetuates a cycle of the rich getting richer and poor getting poorer because, according to the SEC, if you aren't a millionaire, you are too stupid to make good financial decisions for yourself.
In summary, all those reasons SEC is denying a Bitcoin spot ETF is complete BS because they already exist within the regulated markets to a much higher degree. More narrative disguising the true reason: a hard asset that can't be controlled by central planners is a massive threat to central planners and their network. This will all come to light when Grayscale sues the shit out of the SEC.
Either the Doomberg gang is too boomer ignorant to write (Dumberg of crypto) about digital assets accurately, or there is self-interest or self-preservation that motivated this article because of your previous ties to enterprise companies, big banks, and Wall Street.
First, calling Bitcoin a "Ponzi scheme" is on its face absurd. "Ponzi schemes" are by definition centrally-controlled schemes run by a human being (or small cabal of human beings) who actively and knowingly deceive investors by saying they are doing one thing (i.e. investing in stocks, a la Bernie Madoff) while doing another (i.e., keeping the money for themselves, while presenting investors with phony ledger entries claiming fictitious growth). Bitcoin, on the other hand, is completely decentralized and has a specific, transparent, and objectively-knowable value proposition. Furthermore, this value proposition is highly congruent with at least some--and arguably all--of the defining characteristics of what money is within the context of the modern internet economy. You can disagree with this value proposition, but you can't claim that there is some nefarious party who controls it and is actively misrepresenting what it is. Very disappointing that you'd characterize it this way. Normally, Bitcoin detractors call Bitcoin a "bubble" or an "investment mania" which are at least semi-defensible characterizations.
I also take issue with your characterization that people who buy Bitcoin are "injecting US Dollars into the crypto universe". What does that even mean? People buy things they value, and sell things they don't value. If you believe that Bitcoin is a form of money, and you believe that it is a more valuable form of money than US Dollars, then you will be inclined to exchange your dollars for Bitcoin, and hold them for as long as you believe that state of affairs obtains. And the price of Bitcoin as measured in dollars has been increasing relentlessly for 14 years. Think carefully about that. I guarantee you Gary Gensler has, and this is the real reason why Gary Gensler is so desperately cockblocking Bitcoin ETFs--he simply can't stomach the idea of people exchanging US Dollars for real, actual Bitcoin. Gensler's entire existence, his reason for being, is to defend the primacy of the US Dollar in the global fiat money scheme. In fact, if there is a ponzi scheme at play here, it is the US Dollar system, and people like Gensler are the central actors controlling and managing this scheme. Bitcoin is the thing that terrifies him the most, because it's the thing that is exposing the Global Dollar Ponzi scheme for what it is. And from Gary's point of view, the worst thing about Bitcoin is, it can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until the US Dollar is dead.
An ETF is supposed to mimic a mutual fund but without imputation (to the holder) of daily purchases and sales that bear tax consequences. When sold there are ordinary or capital gains taxes only from the sale of the instrument - not from holding the underlying components - because one is trading a paper claim rather than fractions of underlying securities like in mutual funds. Most ETFs do invest, i.e. purchase, the underlying securities or commodities they represent. Cash coming in means they have to find willing sellers of those securities or commodities and sales mean they have to find willing buyers. No cash leaves the system because of an ETF. The devil in the detail is ETFs frequently achieve near-seamless tracking of purchases and redemptions of underlying components (until they can make actual purchases or sales) using derivatives. Index funds don't have that problem. The more volatile the underlying securities, index, or commodities, the riskier and costlier those derivatives become. Most counterparty risk is concentrated in a half dozen commercial banks and, increasingly, Central Clearing Providers. Cash collateral posted to counterparties or via CCPs is also re-hypothecated so no cash leaves the system there either. Only in times of extreme duress do CCPs and their member firms (those same half dozen banks) get to park cash collateral with the fed. And THAT is when cash leaves the system, because no counterparty is trusted to be able to repay collateral. Why might a BTC ETF might make a regulator nervous. For one, you can't falsify supply or holdings. Does anyone know the precise amount of GLD or SLV out there? Can anyone verify how much bullion GLD actually has at any given moment? Can anyone stop companies from issuing more stock if the price is high? At some point there will be exactly 21M BTC and no more. Nobody can create more. No ETF can claim to own more than the blockchain shows. [Side note, at some point, divergence from BTC movements will show how much gold and silver markets have been manipulated to prop up confidence in fiat]. With no intrinsic usage demand other than ledger transactions, the long term "value" of BTC should converge around fluctuations in fiat money supply and sentiment about fiat money. That may be one reason policy makers don't like BTC. The other is that in order to make BTC ETFs seem seamless, there will need to be derivates. Derivatives are leverage in the system. BTC ETFs would introduce more highly volatile leverage in a derivatives system that only the fed can stabilize by removing cash collateral out of the financial system. Having investors lose their shirts because Tulips lost value is one thing. Having to bail out the investment banks and CCP at the heart of all derivatives trades because Tulips blew up in price is quite another. That's my theory but you know what they say, everyone has one.
I've seen the argument about money flows in/out of bitcoin being insufficient to cash out.
The problem I have with this is: is this a valid framework and valid criteria to judge bitcoin performance under this framework?
If bitcoin were a stock, would the flows be considered high or low? Flows are probably less than a blue chip stock, but they are certainly higher than a penny stock.
Some data:
Bitcoin daily turnover according to BusinessInsider, as I write this, says $31.32B vs. $888.25B market cap = 3.5% daily turnover.
S & P 500 total market cap was ~$23T in 2018 according to Ycharts, so daily turnover was ~0.7%.
Assuming all the sources and data are right, then bitcoin is turning over 5x more than the S & P 500 overall. Doesn't seem illiquid to me (which is the cash in/out argument).
I am assuming NYSE(N) is the main stock market. For June 21, 2021 the Ticker A volume was 1.01x10exp9; notional for Ticker A was 5.39x10exp10 = average price of stock sold of ~$53. Seems reasonable.
NYSE total market cap for 2021 was around $27T, give or take. 5.39x10exp10 divided by $27T = 0.20%
Now all of bitcoin volume isn't settled in cash, that is true. But the trading volume is not all to other cryptocurrencies or to stablecoins - unless more than 90% of bitcoin trading volume is to other cryptos or stablecoins, then bitcoin daily turnover is comparable or higher than S & P 500 or NYSE (N) daily trading volume.
Assuming no major mistakes above - is the "cashout" issue for bitcoin, really an issue?
Lastly, I will note bitcoin is certainly different than 99% of the cryptos - there are bitcoin futures, bitcoin funds, etc. - the cashout issue is very likely an issue for the 99% other cryptos.
I could see an issue where the "junk" coming from the 99% other cryptos, attempting to cash out through bitcoin, could cause a bottleneck. But then again, this presumes a divergence in relative valuation between bitcoin and the rest of the market will not develop in such a situation. I would think that such will occur rapidly if some event occurred that caused the overall crypto market to try to cash out - again, a situation unlikely to occur given the HODLers/whale dominance of all crypto.
Love your work but this article truly sucks. You have an incorrect framework that you are trying to force everything into. Ultimately, you still haven't grasped that Bitcoin is an emergent, free market money and is much better than any alternatives; therefore, money will keep flowing in whether there's a spot ETF or not. Ask yourself, why didnt Bitcoin die in 2011, 2013, 2015 or 2017 when dollars stopped flowing in and the price crashed 80%+? You really think its gonna die now if theres no ETF approval? At what point do you have the humility to ask yourself if you might be missing something?
Very nice article! Love the details
Love the article. I think you leave out a much bigger story which is the Fed's holding up Custodia's application for two years. Had Custodia & Kraken been allowed to gain access to Fed window they would have on boarded an insane amount of institutional capital in 2020 and 2021 before the blowups. And the fact that Custodia intends to offer a stable coin and do no lending means it will be THE FIRST BANK IN THE US TO NOT DO FRACTIONAL RESERVE LENDING. That is huge. Instead of "Don't Be Evil" their business model is "Can't be evil." In addition, the state regulatory scheme for digital assets gives customers a bailment. {Bailments are when you give your car keys to the parking attendant.] THAT IS ANOTHER EARTH SHATTERING WAY OF TREATING FINANCIAL ASSETS. No rehypothecation. THAT IS THE REAL THREAT AND THE FED KNOWS IT. Had BlockFi or Celcius been based in WY they would have had to treat their customers digital assets as bailments. In bankruptcy, if those digital assets were bailments, then THE CUSTOMERS GET THEIR DIGITAL ASSETS BACK FIRST. The lenders and equity holders come after. And the suit Custodia has against the Fed is the first time the Fed has ever lost a case of this type. This is the most interesting story in bitcoin BY FAR and no one is covering it.
I think SEC's denial includes misinformed arguments. In my opinion, and to an extent of my knowledge, points (3) and (4) are not correct:
"(3) hacking of the bitcoin network and trading platforms, (4) malicious control of the bitcoin network"
In Bitcoin (or any other PoW network, unlike PoS), controlling big amounts of tokens (BTC) does NOT allow for manipulating the *network* (network, not price) nor it allows for "hacking" it.
The disagreements among commentators and analysts seem to stem an acceptance of the norm and potential for the future.
BTC network and BTC coins are the closest humans have come to pure monetary premium - the language of trade/value. It is secured by literal energy (electricity via asics) and is transparent and auditable. It is gold without the cumbersome physicality and necessity for custodians. It's a bond without requiring the trust of the issuer.
Our current system is primarily sovereign debt collateral. The main problem is, it is not auditable and can be altered by central entities. Commercial lending requires both reserves (cash) and collateral (e.g. treasuries). If/when btc begins to replace the treasuries in the collateral/asset side of the ledger, that is when we begin to experience truer form of free trade. Transparent, scarce, transferable, auditable, decentralized collateral. I'm excited for that future.
It should be (doesn't mean it will be) quite obvious to any critical thinkers with even an average level of intelligence that if the highest level of decision-makers (e.g. Gary Gensler, Jerome Powell) in FedGov or MICIMATT (Military Industrial Congressional Intelligence Media Academic Think Tank) and in the vastly corrupt nation-state wrongly called "The United States of America" are against legitimate challenges to their hoax and scam called "the dollar" and its world reserve currency status, then it must be seriously considered. Everything FedGov and all its tentacles does is wrong and rooted in evil. Everything they are for, we should be against and vice-versa. Bitcoin is on the side of Good; FedGov is Evil. In this epic battle, in the end Good wins and Evil loses.
I dont get your point at all... explain why any bitcoin maxi would urgently need spot ETF? the term bitcoin maxi has been totally diluted at this point
I was initially introduced to the Doomberg world a couple of days ago, after mentioning Bitcoin to a newly introduced friend at a dinner. She said she was starting a new news service specializing in articles based on researched data - i.e. real news. I of course lauded this, and wished her well. After listening to Doomberg's assessment of the farmer's plight on George Gammon (should read "food industry's plight" to deflect any sympathy given to these corporations that invoke the "golly gee, Farmer Fred pathos), I lent some credence to his / her/ their research. HOWEVER, the bitcoin article went a long way to dispelling the initial positive view. The SEC and their minions are an echo chamber of the robbery forest, and have no skin in the game. They are not responsible for the harm their policies cause to anyone, and have been the stewards of an economic ship that is running aground. The vast majority of readers do not read the comments, I do. The USD is a Ponzi scheme - bitcoin is most assuredly not.
The fiat diagram makes sense but I don’t understand how it would be different if Gold took the place of Bitcoin in the diagram—or really anything else either. Everything translates into and out of fiat currency. Why aren’t those pump and dump schemes too? What am I missing, here?
I think Gensler's 7 reasons for not approving a spot Bitcoin ETF are disingenuous. Wouldn't most of these reasons also apply to a futures ETF? If so, then why did he approve a futures ETF? If it is true that there is "fraud and manipulation in the bitcoin spot market," then that would also affect the price of a futures ETF just as it would a spot ETF.
I feel like Doomberg speaks and writes a lot of common sense, but this just felt like he was trying to point fingers a bit too much at very clear and known risks in the crypto/bitcoin market.
You might think those risks are too large for the average person to have access to a spot bitcoin ETF, but most actually mirror many similar risks seen in other assets and markets.
If you think that equities/commodities don't have wash trading, dominant players manipulating prices, hacks of third party platforms, malicious control over systems/networks, trading based on material/non public information, and much more, then I don't know what to say.
Also, the idea that Gary Gensler understands how bitcoin's markets and crypto markets function, just because he taught a course about Blockchain/money at MIT is... surprisingly foolish coming from Doomberg.
I normally understand your articles (most of which are great) on the first pass, but I've read this one several times and I don't get your point. Maybe I'm just dense.
I own gold ETFs and I don't expect them to generate more fiat currency than I put in. Part of the fee to own the ETF pays for storage costs. Kind of like mining costs for bitcoin. The fund holds gold in my name and if the price of gold stays constant, my storage costs would eat up the value of the gold I'm holding. That's just one example
I'm ok with that because I view gold as insurance against central bank idiocy. I think some bitcoin investors think the same way. I don't view my fire insurance premiums as 'wasted' because I'm not getting a return on my 'investment'. I'm happy everyday that it hasn't paid off and I have a place to sleep.
I understand how bitcoin works, it's just not for me. I don't think people who do are idiots, they just have a different perspective than I do.
Maybe we're all missing your point and the article needs a followup?
Doomberg has some great content, but this is nonsense. This is actually very contradictory, maybe even hypocritical, to the mission of Doomberg as I see it, to educate people on the reality of how things work versus the narratives central planners portray.
The narrative of the SEC is to "protect" the investor. However, Doomberg knows very well that really what the SEC does is protect the wealthy and Wall Street's interests only. Bitcoin is the antithesis of protecting big banks and Wall Street. I expect more from Doomberg and expected an article explaining this. I'll do it for you and for readers who hopefully read comments.
All the securities markets are rife with manipulation: big banks depressing prices as they see fit, stock buy backs, massive insider trading that never gets caught, central planners and law makers in congress profiting millions of dollars because they know what policy changes are coming, massive actual Ponzi schemes like Madoff, mass casualties of publicly traded companies like Enron, government bailouts from printed fiat that burden citizens for decades into the future, accredited investor law that prohibits responsible retail investors from wealth building in private markets, changing rules when retail investors crush hedge funds to protect those hedge funds (Robinhood, London Metal Exchange), "smart" money is allowed to trade after hours.. the list goes on. Regulated markets are bloated with rent-seekers and intermediaries that take wealth from people who actually need it. This financial genocide of common citizens is what the digital asset market aims to correct.
The "regulated" markets have caused more pain and repress more people from prosperity than bitcoin ever has or ever will. The biggest Ponzi scheme the world has ever seen is the US dollar, which regulated security markets are denominated in. It perpetuates a cycle of the rich getting richer and poor getting poorer because, according to the SEC, if you aren't a millionaire, you are too stupid to make good financial decisions for yourself.
In summary, all those reasons SEC is denying a Bitcoin spot ETF is complete BS because they already exist within the regulated markets to a much higher degree. More narrative disguising the true reason: a hard asset that can't be controlled by central planners is a massive threat to central planners and their network. This will all come to light when Grayscale sues the shit out of the SEC.
Either the Doomberg gang is too boomer ignorant to write (Dumberg of crypto) about digital assets accurately, or there is self-interest or self-preservation that motivated this article because of your previous ties to enterprise companies, big banks, and Wall Street.
First, calling Bitcoin a "Ponzi scheme" is on its face absurd. "Ponzi schemes" are by definition centrally-controlled schemes run by a human being (or small cabal of human beings) who actively and knowingly deceive investors by saying they are doing one thing (i.e. investing in stocks, a la Bernie Madoff) while doing another (i.e., keeping the money for themselves, while presenting investors with phony ledger entries claiming fictitious growth). Bitcoin, on the other hand, is completely decentralized and has a specific, transparent, and objectively-knowable value proposition. Furthermore, this value proposition is highly congruent with at least some--and arguably all--of the defining characteristics of what money is within the context of the modern internet economy. You can disagree with this value proposition, but you can't claim that there is some nefarious party who controls it and is actively misrepresenting what it is. Very disappointing that you'd characterize it this way. Normally, Bitcoin detractors call Bitcoin a "bubble" or an "investment mania" which are at least semi-defensible characterizations.
I also take issue with your characterization that people who buy Bitcoin are "injecting US Dollars into the crypto universe". What does that even mean? People buy things they value, and sell things they don't value. If you believe that Bitcoin is a form of money, and you believe that it is a more valuable form of money than US Dollars, then you will be inclined to exchange your dollars for Bitcoin, and hold them for as long as you believe that state of affairs obtains. And the price of Bitcoin as measured in dollars has been increasing relentlessly for 14 years. Think carefully about that. I guarantee you Gary Gensler has, and this is the real reason why Gary Gensler is so desperately cockblocking Bitcoin ETFs--he simply can't stomach the idea of people exchanging US Dollars for real, actual Bitcoin. Gensler's entire existence, his reason for being, is to defend the primacy of the US Dollar in the global fiat money scheme. In fact, if there is a ponzi scheme at play here, it is the US Dollar system, and people like Gensler are the central actors controlling and managing this scheme. Bitcoin is the thing that terrifies him the most, because it's the thing that is exposing the Global Dollar Ponzi scheme for what it is. And from Gary's point of view, the worst thing about Bitcoin is, it can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until the US Dollar is dead.
An ETF is supposed to mimic a mutual fund but without imputation (to the holder) of daily purchases and sales that bear tax consequences. When sold there are ordinary or capital gains taxes only from the sale of the instrument - not from holding the underlying components - because one is trading a paper claim rather than fractions of underlying securities like in mutual funds. Most ETFs do invest, i.e. purchase, the underlying securities or commodities they represent. Cash coming in means they have to find willing sellers of those securities or commodities and sales mean they have to find willing buyers. No cash leaves the system because of an ETF. The devil in the detail is ETFs frequently achieve near-seamless tracking of purchases and redemptions of underlying components (until they can make actual purchases or sales) using derivatives. Index funds don't have that problem. The more volatile the underlying securities, index, or commodities, the riskier and costlier those derivatives become. Most counterparty risk is concentrated in a half dozen commercial banks and, increasingly, Central Clearing Providers. Cash collateral posted to counterparties or via CCPs is also re-hypothecated so no cash leaves the system there either. Only in times of extreme duress do CCPs and their member firms (those same half dozen banks) get to park cash collateral with the fed. And THAT is when cash leaves the system, because no counterparty is trusted to be able to repay collateral. Why might a BTC ETF might make a regulator nervous. For one, you can't falsify supply or holdings. Does anyone know the precise amount of GLD or SLV out there? Can anyone verify how much bullion GLD actually has at any given moment? Can anyone stop companies from issuing more stock if the price is high? At some point there will be exactly 21M BTC and no more. Nobody can create more. No ETF can claim to own more than the blockchain shows. [Side note, at some point, divergence from BTC movements will show how much gold and silver markets have been manipulated to prop up confidence in fiat]. With no intrinsic usage demand other than ledger transactions, the long term "value" of BTC should converge around fluctuations in fiat money supply and sentiment about fiat money. That may be one reason policy makers don't like BTC. The other is that in order to make BTC ETFs seem seamless, there will need to be derivates. Derivatives are leverage in the system. BTC ETFs would introduce more highly volatile leverage in a derivatives system that only the fed can stabilize by removing cash collateral out of the financial system. Having investors lose their shirts because Tulips lost value is one thing. Having to bail out the investment banks and CCP at the heart of all derivatives trades because Tulips blew up in price is quite another. That's my theory but you know what they say, everyone has one.
I've seen the argument about money flows in/out of bitcoin being insufficient to cash out.
The problem I have with this is: is this a valid framework and valid criteria to judge bitcoin performance under this framework?
If bitcoin were a stock, would the flows be considered high or low? Flows are probably less than a blue chip stock, but they are certainly higher than a penny stock.
Some data:
Bitcoin daily turnover according to BusinessInsider, as I write this, says $31.32B vs. $888.25B market cap = 3.5% daily turnover.
This link: https://plos.figshare.com/articles/dataset/Average_daily_trading_volume_of_S_P_500_stocks_and_non-S_P_500_stocks_and_the_trading_volume_of_the_top_quintile_of_stocks_in_each_group_for_select_years_from_1960_to_2018_/12024972 says average daily turnover for the S & P 500 was $168,376M in 2018.
S & P 500 total market cap was ~$23T in 2018 according to Ycharts, so daily turnover was ~0.7%.
Assuming all the sources and data are right, then bitcoin is turning over 5x more than the S & P 500 overall. Doesn't seem illiquid to me (which is the cash in/out argument).
How about the NYSE? I got daily numbers from the CBOE here: https://www.cboe.com/us/equities/market_statistics/historical_market_volume/
I am assuming NYSE(N) is the main stock market. For June 21, 2021 the Ticker A volume was 1.01x10exp9; notional for Ticker A was 5.39x10exp10 = average price of stock sold of ~$53. Seems reasonable.
NYSE total market cap for 2021 was around $27T, give or take. 5.39x10exp10 divided by $27T = 0.20%
Now all of bitcoin volume isn't settled in cash, that is true. But the trading volume is not all to other cryptocurrencies or to stablecoins - unless more than 90% of bitcoin trading volume is to other cryptos or stablecoins, then bitcoin daily turnover is comparable or higher than S & P 500 or NYSE (N) daily trading volume.
Assuming no major mistakes above - is the "cashout" issue for bitcoin, really an issue?
Lastly, I will note bitcoin is certainly different than 99% of the cryptos - there are bitcoin futures, bitcoin funds, etc. - the cashout issue is very likely an issue for the 99% other cryptos.
I could see an issue where the "junk" coming from the 99% other cryptos, attempting to cash out through bitcoin, could cause a bottleneck. But then again, this presumes a divergence in relative valuation between bitcoin and the rest of the market will not develop in such a situation. I would think that such will occur rapidly if some event occurred that caused the overall crypto market to try to cash out - again, a situation unlikely to occur given the HODLers/whale dominance of all crypto.
Love your work but this article truly sucks. You have an incorrect framework that you are trying to force everything into. Ultimately, you still haven't grasped that Bitcoin is an emergent, free market money and is much better than any alternatives; therefore, money will keep flowing in whether there's a spot ETF or not. Ask yourself, why didnt Bitcoin die in 2011, 2013, 2015 or 2017 when dollars stopped flowing in and the price crashed 80%+? You really think its gonna die now if theres no ETF approval? At what point do you have the humility to ask yourself if you might be missing something?