Is it all good news when institutions invest in Bitcoin?

[Karartma1]

According to a recent report by LongHash, public companies in the U.S. now own $10 billion worth of Bitcoin – something that can be accredited to increased investment as well as the cryptocurrency’s rise in price over the month of October.
While the general consensus regarding more institutions getting interested in Bitcoin is fairly positive, the report noted that, “In the short to medium term, the positives far outweigh the negatives. But in the next decade or so, if Bitcoin eventually evolves into a global currency atop a store of value, it then could pose certain security risks.”

More here https://eng.ambcrypto.com/is-it-all-good-news-when-institutions-invest-in-bitcoin/

LongHash report here https://shorturl.at/dxST3

[Lucius]

If we ask this question to the average Bitcoin user, I believe most don't mind institutional money going in that direction - because most are in this game just for profit, and don't worry too much about what will happen to Bitcoin in say 10 years. The problem that may arise from the fact that big players are starting to take an interest in BTC lies in the fact that all these investments could at some point become a serious burden for the crypto community.

The article itself expresses suspicion and concern about how the authorities will treat BTC, because at the moment almost 600 000 BTC are at risk of being seized by the US government - and that number is sure to grow. Here the very idea that everyone should own their private keys falls completely, because all these companies mostly rely on custodial services, and these same services are exposed not only to absolute cooperation with the authorities but also to constant hacking threats.

Personally, I think that any centralization of such a large amount of BTC is not good, but as we can see, it is inevitable that those who have the money and access to the open market are completely free to invest.

[hatshepsut93]

Personally, I think that any centralization of such a large amount of BTC is not good, but as we can see, it is inevitable that those who have the money and access to the open market are completely free to invest.

Having a few percents of Bitcoin's supply owned by many centralized entities hardly counts as centralization, even Satoshi, a single entity (most likely) holds more Bitcoin than that, and it never was considered a point of centralization by Bitcoin fans.

I personally don't see any problems here, there's enough BTC for everyone, and maybe it's even a positive, because Bitcoin will be less likely to get banned if institutions are already invested in it, we all know that money are influencing politics, so now these companies could be spending money to lobby for Bitcoin, to protect their investments.

[Lucius]

Having a few percents of Bitcoin's supply owned by many centralized entities hardly counts as centralization, even Satoshi, a single entity (most likely) holds more Bitcoin than that, and it never was considered a point of centralization by Bitcoin fans.

Satoshi is another story that has always had the primary focus on the fact that one day he will dump those coins, which would of course have very severe consequences for Bitcoin, not only on the price - but also on the trust of all BTC users. The centralization I mean is not directly aimed at these institutions, but at the way they guard their BTC and at the fact that it is exposed to the authorities at all times.

Is it good or bad that Coinbase has about 1 million BTC in its possession? Regardless of security measures (say 98% in cold wallets), such centralization is not something that helps us get rid of the current financial system in which ours is not really ours. If one of the basic principles that BTC represents is that every man should be his own bank, then we have largely strayed from that goal. Look at it however you want, but all those millions of BTC in custodial wallets don’t really belong to their owners, they always dance on the edge of hacking, seizure or something like that.

[hatshepsut93]

Is it good or bad that Coinbase has about 1 million BTC in its possession? Regardless of security measures (say 98% in cold wallets), such centralization is not something that helps us get rid of the current financial system in which ours is not really ours. If one of the basic principles that BTC represents is that every man should be his own bank, then we have largely strayed from that goal. Look at it however you want, but all those millions of BTC in custodial wallets don’t really belong to their owners, they always dance on the edge of hacking, seizure or something like that.

Institutions are using custodial services because they believe they are less likely to be hacked than themselves, and if this would happen, they will have someone to blame instead of themselves.

Yes, Coinbase is bad, as are other exchanges, but overwhelming majority of coins are still held by users themselves, so there's really no need to worry about it too much. Coinbase already tried to centralize Bitcoin with their support of Segwit2x, and it only demonstrated how powerless they are before our decentralized community.

[Karartma1]

Having a few percents of Bitcoin's supply owned by many centralized entities hardly counts as centralization, even Satoshi, a single entity (most likely) holds more Bitcoin than that, and it never was considered a point of centralization by Bitcoin fans.

Satoshi is another story that has always had the primary focus on the fact that one day he will dump those coins, which would of course have very severe consequences for Bitcoin, not only on the price - but also on the trust of all BTC users. The centralization I mean is not directly aimed at these institutions, but at the way they guard their BTC and at the fact that it is exposed to the authorities at all times.

Is it good or bad that Coinbase has about 1 million BTC in its possession? Regardless of security measures (say 98% in cold wallets), such centralization is not something that helps us get rid of the current financial system in which ours is not really ours. If one of the basic principles that BTC represents is that every man should be his own bank, then we have largely strayed from that goal. Look at it however you want, but all those millions of BTC in custodial wallets don’t really belong to their owners, they always dance on the edge of hacking, seizure or something like that.

You nailed it here because that is the ultimate problem regarding custodial wallets. Again, that is inevitable: average users will always prefer convenience over complication as we all know that storing, securing and using bitcoin is hard at an experienced level. I can't see those million Coinbase users having their own wallets.

[figmentofmyass]

Yes, Coinbase is bad, as are other exchanges, but overwhelming majority of coins are still held by users themselves, so there's really no need to worry about it too much.

coinbase currently holds ~5% of the circulating bitcoin supply. let's imagine this consolidation of coins into the hands of custodians continues and we're talking about single actors controlling 10% or even 20% of the supply. then let's imagine one of these custodians get hacked---cold storage compromised, everything gone. don't you think a custodian controlling 20% of the supply on behalf of users would be quite influential in facilitating a popular fork that recovers the coins?

this is the kinda concentration of wealth that resulted in the DAO fork on ethereum. we can laugh about this stuff and make fun of CZ when binance gets hacked for 7k bitcoins, but i think it'll be less laughable when it happens with 3 million bitcoins, or something crazy like that.

[Karartma1]

Yes, Coinbase is bad, as are other exchanges, but overwhelming majority of coins are still held by users themselves, so there's really no need to worry about it too much.

coinbase currently holds ~5% of the circulating bitcoin supply. let's imagine this consolidation of coins into the hands of custodians continues and we're talking about single actors controlling 10% or even 20% of the supply. then let's imagine one of these custodians get hacked---cold storage compromised, everything gone. don't you think a custodian controlling 20% of the supply on behalf of users would be quite influential in facilitating a popular fork that recovers the coins?

this is the kinda concentration of wealth that resulted in the DAO fork on ethereum. we can laugh about this stuff and make fun of CZ when binance gets hacked for 7k bitcoins, but i think it'll be less laughable when it happens with 3 million bitcoins, or something crazy like that.

I second that. It's a massive concern for me too and your DAO example triggered several warnings in my head. Honestly, we can all see the custodian market journey has just started and it is clearly paving the way to some holdings centralisation. This is what institutional money implies and we should have known that already.

[Lucius]

Institutions are using custodial services because they believe they are less likely to be hacked than themselves, and if this would happen, they will have someone to blame instead of themselves. 

Or it may be more correct to say that they may not understand what it really means to own a BTC, and the difference is big between a fiat in a bank and a BTC in a bank. When someone robs money from a bank, that money will be recouped in one way or another - but in the case of Mt.Gox, we have seen that when someone steals hundreds of thousands of BTC, no one can return it by printing new and compensating clients. It is also possible that institutions have an obligation to keep their funds in such a way (custodial), so although some of them might wish otherwise, the laws do not allow them to do so.

You nailed it here because that is the ultimate problem regarding custodial wallets. Again, that is inevitable: average users will always prefer convenience over complication as we all know that storing, securing and using bitcoin is hard at an experienced level. I can't see those million Coinbase users having their own wallets.

Simplicity versus conditionally speaking complications is always the choice of the majority, but not all of them understand why Bitcoin exists, because if that were the case then they would be their own bank. The conclusion is that their way of handling BTC is not only incorrect, but can be dangerous in the long run. Coinbase is currently a private company, but that doesn't mean that at some point it won't change ownership (and become state-owned) or be bought by some bank.

[Karartma1]

The point is that the majority does not care about being a bank, they probably couldn't care less if bitcoin is here for one reason or the other. They see it as a fashionable asset now, a must-have for a modern portfolio. Coinbase could be run by me, by you, by the state, by everyone else and they wouldn't care. Retail and institutional investors see bitcoin for its price only, let's face it.

[error08]

~
Retail and institutional investors see bitcoin for its price only, let's face it.

Most people I would say, we do care about bitcoin price.
we want it not to be an object of manipulation, but it is a free market, whoever wants bitcoin could buy it, whether as an alternative currency, as an asset, or just for profits.
at this point, institutional-investors become a positive impact on the bitcoin market, but we don't know when they will sell it. Probably the new ATH will create a snowball effect when people panic sells then history repeats itself.

[stomachgrowls]

~
Retail and institutional investors see bitcoin for its price only, let's face it.

Most people I would say, we do care about bitcoin price.
we want it not to be an object of manipulation, but it is a free market, whoever wants bitcoin could buy it, whether as an alternative currency, as an asset, or just for profits.
at this point, institutional-investors become a positive impact on the bitcoin market, but we don't know when they will sell it. Probably the new ATH will create a snowball effect when people panic sells then history repeats itself.

It should be anticipated because we cant just see a market that only with continuous rise and for those institutional investors then the primary motive will always be on making profits.
So its already expect that there would really be a point on where they would make some huge sell.

This is indeed a free market and you cant stop people to buy and it isnt needed for a specific type of investor and for sure to those financially capable being then would always have the advantage.
They can own much more than into those typical small time investors in the market.

When it comes to price effect then it can really rise up or might even breaking up and reach new ATH's and thats a good new but the bad news will always be lying behind.
There would always be a sell-off into their bags.

[DapanasFruit]

The entry of many financial institutions into Bitcoin is always welcomed with open arms and some excitement along the way. This is seen as the biggest sign that Bitcoin is now getting into the mainstream and a seal of approval coming from the finance community. And we know that big institutions can represent a big demand which can push Bitcoin to the top. As to whether this can be a big problem later on, let's leave the future take care of that.