Why the ETF debate is overheating and the SEC is in favour of Bitcoin

In recent weeks, the debate about a possible Bitcoin ETF approval or its decision date has led to heated discussions. The dried out crypto market is thirsting for new liquidity that an ETF approval by the US Securities and Exchange Commission (SEC) would bring. If a Bitcoin ETF promises a new rally for crypto investors, people who devote themselves to technology and are against a regulated crypto market see it as a misguided development.

If one has heard of Bitcoin in the non-crypto media in recent weeks, it was mainly Bitcoin ETF applications filed by several financial market players with the US Securities and Exchange Commission (SEC). So far, all applications relating to an exchange-traded index fund have been rejected by the authority. The hope that it could work out at the next decision dates in the next few weeks not only supports the Bitcoin price, but also awakens the sleepy greed of many crypto investors and those who want to become one.

Ethereum head Vitalik Buterin is angry against Bitcoin revolution

Contrary to the short-term positive price implications that some investors are longing for, there are also dissenters who do not want to hear about a Bitcoin revolution like this: https://www.forexaktuell.com/en/bitcoin-revolution-scam/. For example, Vitalik Buterin, the well-known head behind Ethereum, has unequivocally criticised crypto ETFs. The original motivation behind Bitcoin was the currency function and the associated global adaptation as a payment medium. The overemphasis of the investment case by ETFs damages more than it helps, as it directs the focus away from the actual functions of the crypto currencies.

Bitcoin loophole as a danger to crypto adaptation

The justification should by no means be seen as a purely idealistic one. There are also factual arguments, particularly of a technical nature, against crypto-ETF approval. If one recalls the hype phase at the end of 2017, then it becomes clear which dangers can arise from an enormous inflow of funds in a short period of time. The entire crypto ecosystem more or less collapsed under the enormous flood of transactions. Stock exchanges could only offer their services to a limited extent, transaction times and costs skyrocketed due to a lack of scalability and the security deficiencies of the Bitcoin loophole crypto service providers were serious.

Certainly, a lot has happened in the meantime and some shortcomings have been remedied. The scaling of Bitcoin and Ether, on the other hand, is hardly any further than it was then. Although there are now second-layer solutions such as Lightning, these are still far too impracticable to be used across the board. So if Big Money should flood the market with ETFs in a short time, then overheating of the ecosystem, especially in scalability, cannot be ruled out.

What is Bitcoin’s WKN?
In addition to the burden on the ecosystem, crypto-purists criticise the one-sided external impact on the general public. If Bitcoin is reduced to regulated funds and certificates, this damages the basic understanding of the crypto economy. If a Bitcoin fund is booked into the custody account of the house bank via a securities identification number (WKN), this is in absolute contradiction to the Bitcoin White Paper. A certain re-centralisation would take place, which would again make banks the central managers of assets. The narrative „Be your own bank“ is thereby led ad absurdum. No one needs to know what a wallet or private key is for a Bitcoin ETF – the responsibility lies exclusively with the regulated financial services provider.

Non-crypto-purists see it the other way around. Their argumentation is that an ETF lowers the crypto inhibition threshold, i.e. promotes a broad willingness to deal with Bitcoin and Co. at all – ETFs as an entry drug for non- crypto affine.

Keep Cool
Bitcoin ETF or not – there are reasons for and against ETF approval. However, it must be clear that crypto ETFs are definitely coming. The question is only how fast. Accordingly, it can be quite positive if the SEC gives the current crypto ETF applications a basket so that the crypto ecosystem gets more time to further expand and stabilise its infrastructure. It is fortunate that no ETFs were approved during the hype phase at the end of 2017. Had there been 2017 Bitcoin ETFs, the overheating and subsequent drop height would have been even greater.