Bitcoin’s Worth and the Risk of Spot Bitcoin ETFs

Summary

In a recent blog post, Arthur Hayes, the ex-CEO and co-founder of BitMEX, warned that spot Bitcoin ETFs could “completely destroy” Bitcoin. He emphasized that Bitcoin’s value lies in its ability to move, whereas spot Bitcoin ETFs are designed to accumulate assets and store them away. Hayes highlighted the risks of ETF issuers and investors choosing Bitcoin derivatives over the cryptocurrency, leading to a drop in network activity and miner motivation.

Introduction

Arthur Hayes, the former CEO of BitMEX, has expressed concerns about the potential impact of spot Bitcoin ETFs on the future of Bitcoin. In a blog post, he argued that the value of Bitcoin is derived from its ability to move and that spot Bitcoin ETFs, which aim to accumulate and store assets, could undermine this fundamental characteristic. Hayes warned of the potential consequences if ETF issuers and investors prioritize Bitcoin derivatives over the actual cryptocurrency.

Main Points

Hayes highlighted several risks associated with spot Bitcoin ETFs. Firstly, if ETF issuers and investors choose derivatives instead of holding Bitcoin, it could lead to a significant drop in network activity and miners’ motivation to validate transactions. When miners are unable to cover their operational costs, they are forced to shut down their equipment, resulting in network crashes and the disappearance of Bitcoin. Hayes speculated that this could pave the way for a new digital monetary network to replace Bitcoin, deviating from the decentralized electronic currency envisioned by its creator, Satoshi Nakamoto.

Bloomberg analysts have predicted that all outstanding applications for spot Bitcoin ETFs will likely be approved between January 5 and 10, 2024. Hayes’s warnings come just two weeks before this deadline, as the SEC has yet to make a judgment on the applications submitted by various financial giants. However, only firms that submit their final S-1 amendment forms by the December 29, 2023 deadline will be considered in the first wave of potential spot Bitcoin ETF issuers. Missing this critical deadline will result in exclusion from the first wave.

Conclusion

Bitcoin’s worth, as Arthur Hayes argues, is rooted in its ability to move. Spot Bitcoin ETFs, if they become too popular, could pose a threat to Bitcoin’s value and potentially “destroy” it. The risks associated with ETF issuers and investors favoring derivatives over the actual cryptocurrency include a drop in network activity and miners’ motivation. Hayes’s warnings come at a crucial time, just before the anticipated approval of spot Bitcoin ETF applications in early 2024. The future of Bitcoin and the potential emergence of a new digital monetary network are at stake.