Arthur Hayes Why do we say that ETFs may strangle bitcoin?

Price and utility are two different things.

Original title: Institutional custody of bitcoin could kill it, cautions Hayes

Original author: DARREN KLEINE

Original source: Blockworks

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Translated by: Azuma

Editor’s note: The expected approval of the spot Bitcoin ETF has ignited the entire crypto industry, but according to Arthur Hayes, co-founder and former CEO of BitMEX, this may not be a good thing for Bitcoin itself and its users.

As a super OG in the crypto industry, Arthur believes that the growing interest of institutions in Bitcoin could lead to “a situation we won’t like.”

Recently, Arthur appeared on the On the Margin podcast and was interviewed by Blockworks, an overseas crypto media outlet.

During the interview, Arthur posed a hypothesis: what would happen if Larry Fink (founder and CEO of BlackRock) and those traditional financial people entered the market and absorbed a large amount of freely circulating Bitcoin?

Arthur predicts that after the spot Bitcoin ETF, these institutions may also propose ETFs with a theme of “Bitcoin mining,” as BlackRock is already the largest shareholder of some top mining companies.

• Note: Arthur’s point here is that in the future, institutions will not only control a significant portion of Bitcoin’s circulation supply, but also have a substantial influence on Bitcoin’s network hash rate (consensus base).

Arthur warns that mega asset management companies like BlackRock are essentially agents of national will and will act according to the requirements of the state.

• “If the national will wants citizens to stay within the fiat currency system in order to tax them through inflation and use the funds to repay growing debts, then it makes sense for mega financial institutions (as agents of national will) to get involved in Bitcoin ETFs.”

• “Because under such a system, you can no longer use Bitcoin normally. Through ETFs, what you get is only a derivative financial asset, not the actual Bitcoin itself.”

• “You need to use fiat currency to buy this derivative asset… Behind this, institutions will buy the actual Bitcoin and then find a custodian service provider to keep the actual Bitcoin there.”

• “If the ETFs from institutions like BlackRock become too large in scale, it may actually kill Bitcoin, because the actual Bitcoin will not be traded to users, it will just be quietly held there, and users will only get a derivative asset tied to its price.”

In addition, Arthur further warns that a single entity holding a large share of computational power will also strengthen their control over network consensus.

In order for Bitcoin to always exist as a “rock solid crypto asset”, the network may need to implement a series of upgrades in the future (especially encryption and privacy-related features). However, traditional financial institutions may not agree with these ideas. What if they oppose?

• “Will they support these upgrades? This is a question that remains uncertain. I don’t know the answer, but clearly, when passive holders with a large share of the ecosystem emerge, there will be more unknowns.”

Arthur emphasizes that since its inception, Bitcoin has been a currency completely different from fiat currencies. Bitcoin was created to achieve inclusive finance, with the vision of enabling everyone in the world to securely transfer and transact anytime, anywhere.

But what will happen if most of the Bitcoin is controlled by one or a few institutions?

Of course, wider acceptance of Bitcoin will undoubtedly greatly increase its price, but is this really beneficial for the actual utility of Bitcoin?

• “Are we addicted to short-term excitement and ignoring future disasters? I don’t know the answer.”

Finally, Arthur suggests that people need to think long-term about these issues. If the ETF really comes, Bitcoin’s price will obviously rise, but what will be the ultimate outcome of this story?

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