How the Bitcoin ETF could actually tank Bitcoin's market value

[yudi09]

A number of companies that submit ETF proposals to the SEC have studied further about the advantages and disadvantages before deciding to submit the application and have it accepted by the SEC.

Bitcoin, a currency with a peer-to-peer system, which is widely used as an investment asset, is indeed very volatile in price on the market, but in long-term investments, investors can get big profits through high price returns.
Large companies are aware of the potential profits of their investments in Bitcoin. When an ETF is approved, it is possible that companies will want a cheaper purchase price.

Do not panic. This is just the beginning. Don't get trapped, stick to the basic principle that Bitcoin is a valuable asset that has a strong foundation, not like a meme coin.

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[bitLeap]

What if, by positioning Bitcoin as a serious investment that is judged along side other investments in companies, real estate, hard commodities, bonds, and so on, that the scrutiny actually diminishes Bitcoin's appeal?

Of course this means that in this case Bitcoin is not like a decentralized system so its value and attractiveness can increase or decrease depending on Bitcoin being converted into investment assets such as gold, houses, land or other types of assets. Because each type of asset has a different function it all depends on the value offered.

[legiteum]

What if, by positioning Bitcoin as a serious investment that is judged along side other investments in companies, real estate, hard commodities, bonds, and so on, that the scrutiny actually diminishes Bitcoin's appeal?

Of course this means that in this case Bitcoin is not like a decentralized system so its value and attractiveness can increase or decrease depending on Bitcoin being converted into investment assets such as gold, houses, land or other types of assets. Because each type of asset has a different function it all depends on the value offered.

But all ETFs are necessarily centralized, so what could "decentralized" possibly mean in the context of somebody buying shares of an ETF?

[pooya87]

What happens when "mainstream" investors find out that Bitcoin isn't really a viable mainstream currency, and that it's really only useful as a meme investment instrument with no inherent value beyond its own name? What happens when they find out that the "decentralized" thing is just a myth, and that, in actual reality, almost nobody uses Bitcoin (or any other cryptos) that way? What if the "serious" investment managers discover that the mythology behind Bitcoin is just... mythology?

When they "find out" these things, they have to wake up from their dream because none of the things you said in here are correct in the real world.

What happens, in short, when Bitcoin ventures outside of its tight community of enthusiastic anarcho-libertarians--who desperately want Bitcoin to succeed for geopolitical reasons--and it is instead evaluated, coldly, like any other investment by people who don't have that political agenda?

Another weird statement you are making here in a topic you start in the name of ETF while instead of discussing about the title of the topic you are just expressing your strange views about Bitcoin like claiming bitcoiners are desperate and want bitcoin to succeed because of geopolitical reasons!!!

In other words you first have to prove all your assumptions (eg. bitcoin's decentralization is a myth) then start discussing about your conclusion (ie. ETF could tank bitcoin market).

And what if the first impression of millions of mainstream potential investors in Bitcoin is that it's just a super-volatile asset that only seems to go down in price?

Nothing, they leave Bitcoin alone so bitcoin can go back to only going up in price

[legiteum]

And what if the first impression of millions of mainstream potential investors in Bitcoin is that it's just a super-volatile asset that only seems to go down in price?

Nothing, they leave Bitcoin alone so bitcoin can go back to only going up in price

Um, you understand that if Bitcoin is "left alone" by investors, it goes... down in price, not up, right? 

In a sense, you just made my point for me: that the ETF will introduce Bitcoin to millions of mainstream investors, who will just view it as another instrument whose job is solely to go up in price, and they aren't going to find any meaning behind it when except that it is not any more "private" or "decentralized" than any other ETF they buy from their licensed brokerage.

And I don't know how much more I can say to "prove" that Bitcoin is not effectively decentralized for almost all of its users except to say that nobody I've ever known personally who has invested in Bitcoin or other cryptos actually physically hold their own private keys. They all use it through some app or brokerage like CoinBase, which means it's no different than their bank account.

Put it this way, if everybody who currently holds positions in Bitcoin and don't physically hold their private keys "left it alone"--in other words, sold their positions--then the price of Bitcoin would probably drop by a factor of about a thousand...

[BitcoinsGreat]

Um, you understand that if Bitcoin is "left alone" by investors, it goes... down in price, not up, right? 

Logically the price of bitcoin move up and down due to the demand and supply of bitcoin however keep in mind that ETF is not a thing that bitcoin will start to fly away. Keep an eye on blockchain data, the price isn't moving because of the OTC deal, Keep in mind, its a long term game and it will pay off eventually to the investors in bitcoin.

[DooMAD]

now that Bitcoin is "just another investment"

The fact that ETFs exist doesn't change anything.  Outsiders choosing to make bets on Bitcoin doesn't suddenly change what it is.  It's exactly the same thing as it has always been.  

and it's going to need a story about why it's uniquely positioned to outperform other investment instruments that do the same thing.

Markets don't need a "story".  

Yes, but what actual value does blockchain serve?

Somehow I find it hard to believe you don't already know the answer to that.  

nobody I've ever known personally who has invested in Bitcoin or other cryptos actually physically hold their own private keys.

Meet smarter people, then.  I would say maybe you'll learn something, but you seem to enjoy performing a routine where you pretend not to understand these things.

[legiteum]

nobody I've ever known personally who has invested in Bitcoin or other cryptos actually physically hold their own private keys.

Meet smarter people, then.  I would say maybe you'll learn something, but you seem to enjoy performing a routine where you pretend not to understand these things.

I know a lot of smart people, thank you very much.

The fact is that if these "stupid" people you are talking about--the ones who don't hold their private keys in their own physical possession--all dumped their Bitcoin holdings, then the price of Bitcoin would plummet.

You seem to want it both ways: you want the "stupid" people to buy positions in the meme that is "Bitcoin" so the value of your holdings will go up, but you don't consider them "real" unless they are experts like yourself, which almost none of them are.

And for the record, I've asked for hard, documented, non-cryptocurrency design wins for the blockchain architecture, and nobody either here on Bitcointalk nor anywhere else can show me one. My own 30+ years of experience in computer architecture tells me that the technology has no other viable uses because it will never scale and doesn't solve any real-world problems, but I'm willing to be proven wrong. So far I haven't been.

[AprilioMP]

And what if the first impression of millions of mainstream potential investors in Bitcoin is that it's just a super-volatile asset that only seems to go down in price?

In the whitepaper, Bitcoin is not an investment asset. Bitcoin is a peer-to-peer electronic cash system. I think that is very clear before reading the entire contents of the Bitcoin whitepaper which consists of introduction, transactions and conclusions. Or simply by reading the abstract, we will know that Bitcoin is not an investment asset. Investment assets are uses made by users because Bitcoin can and is proven to be a hedge.

The price fluctuates, it's true. If you are afraid that Bitcoin will drop in price, I don't have an answer because when it first appeared on the market, Bitcoin did not have a price like now which is almost $44K. I didn't mention the previous ATH price that Bitcoin has ever reached.

There is no real need to be afraid of the Bitcoin price because 1 BTC = 1 BTC.
If cashed in with fiat then 1 BTC = different currency prices for each country.
Regarding political agendas, that is not my expertise because I am not interested in politics.

[coolcoinz]

nobody I've ever known personally who has invested in Bitcoin or other cryptos actually physically hold their own private keys.

Meet smarter people, then.  I would say maybe you'll learn something, but you seem to enjoy performing a routine where you pretend not to understand these things.

I feel like this is good advice. I don't know a single bitcoin investor who does not hold his private keys, although most of these people are the ones that I have talked to about bitcoin and directly or indirectly pushed towards it. You need to broaden your horizons, OP. How many bitcoiners do you really know in person? Who are these people and how much do they own? Don't take this as an insult, but if they hold a few hundred dollars worth of bitcoin, they aren't serious about their investment, so I wouldn't expect them to be serious about concepts like self-custody, decentralization and security.

The fact is that if these "stupid" people you are talking about--the ones who don't hold their private keys in their own physical possession--all dumped their Bitcoin holdings, then the price of Bitcoin would plummet.

I've encountered people who have a lot to say about these things and who wanted to tell me how I should secure my bitcoin and then I ask them how much they have and they happen to own 0.01BTC and my response to them is that I wouldn't care where my private keys are if my whole investment was worth less an average mobile phone, or a set of car tires.

the technology has no other viable uses because it will never scale and doesn't solve any real-world problems,

What real problems would you like it to solve? Poverty? Wars? How about dilution of money supply by the Federal Reserve and inflation?

[legiteum]

And what if the first impression of millions of mainstream potential investors in Bitcoin is that it's just a super-volatile asset that only seems to go down in price?

In the whitepaper, Bitcoin is not an investment asset.

Yes, that's true. But lots of technologies were made for one reason only to be used for another reason.

Bitcoin is simply not viable as a mainstream means of payment. There's no chance it can scale to even 1/10,000 of the price-performance necessary to take on worldwide credit card volume for instance.

Today, in actual fact, Bitcoin is used mostly as an investment asset, and it offers no advantages over other technologies for any other purpose.

[legiteum]

[...]
Don't take this as an insult, but if they hold a few hundred dollars worth of bitcoin, they aren't serious about their investment, so I wouldn't expect them to be serious about concepts like self-custody, decentralization and security.

Yes, but here's the thing: these are the people Bitcoin needs in order to be accepted as a mainstream investment option. This is the whole point of my OP. You can deride the "dumb dumbs" all you want, but if you scare their money away, the price of Bitcoin will likely go down.

In other words, if most people's first impression of Bitcoin is that you have to believe in a bunch of technical concepts that don't apply to their everyday lives in any way in order to see the value, then that's going to leave them with a negative impression.

I've encountered people who have a lot to say about these things and who wanted to tell me how I should secure my bitcoin and then I ask them how much they have and they happen to own 0.01BTC and my response to them is that I wouldn't care where my private keys are if my whole investment was worth less an average mobile phone, or a set of car tires.

Well, if you ask most mainstream people, I think it would be the exact opposite: they don't want their entire life savings held in some iPhone they could accidentally drop into a landfill. They like the idea that their life savings is secured in a financial institution that is based on their identity as a person.

Most people only keep a tiny faction of their total wealth in their physical wallet on their own person.

What real problems would you like it to solve? Poverty? Wars? How about dilution of money supply by the Federal Reserve and inflation?

I am talking here of using blockchain as a technology architecture to solve real problems, e.g. the way technologies like RDBMS's solve problems, or cloud computing solves problems, or other new architectures solve problems.

And the point about the Fed inflating the US dollar is circular reasoning: you are saying that Bitcoin will outperform the US dollar because... Bitcoin will outperform the US dollar. Maybe it will, or maybe it won't. Maybe it will lose half of its value in the next six months (like it did 24 months ago for instance), and maybe it will double in price. But in that context, bringing up the inflation of the US dollar--which peaked at something like 10% annually in the worst part of the pandemic recovery--seems pretty paltry in comparison.

And absolutely any investment instrument from stocks to bonds to pork bellies can be used to hedge against the US dollar, so Bitcoin is not exactly unique in that regard.

[DooMAD]

And for the record, I've asked for hard, documented, non-cryptocurrency design wins for the blockchain architecture, and nobody either here on Bitcointalk nor anywhere else can show me one. My own 30+ years of experience in computer architecture tells me that the technology has no other viable uses because it will never scale and doesn't solve any real-world problems, but I'm willing to be proven wrong. So far I haven't been.

We aren't here to discuss non-cryptocurrency use cases, so let's not move the goalposts in an unreasonable fashion.  You're claiming you don't see any value in Bitcoin and it doesn't solve any real world problems.  You're also attempting to assert that institutional investors getting involved somehow has a bearing on the value proposition, which is not the case.

Bank bail-outs/bail-ins are a real world problem.  When a bank becomes insolvent, despoitors need to claim back their money back via government schemes.  Or, worse still, the government choose to simply take money from the depositors to keep that bank afloat.  Bitcoin solves this problem.  It cannot become insolvent.  If a miner goes under, users don't lose their money.

Inflation is a real world problem.  The public have to place trust in their governments, treasuries, mints and central banks to carefully manage their economies and to avoid debasing the currency.  No one can make guarantees about the supply because more money can be blinked into existence from nothing.  Bitcoin solves this problem.  It makes credible and predictable guarantees about supply and inflation.

Censorship is a real world problem.  Governments can order banks and card companies to block payments to organisations they don't approve of.  Bitcoin solves this problem.  No third party can challenge, block or reverse a payment once it has been made.

If you can't see the benefit in any of that, I'd suggest that after 30+ years, it might be time to invest in some new glasses.  I'm also far from convinced that institutional investors care about any of this and are just happy that they now get to play in such a volatile market.  Traders don't see price plummets as a "bad impression".  They see it as an opportunity to buy cheap.  

[legiteum]

And for the record, I've asked for hard, documented, non-cryptocurrency design wins for the blockchain architecture, and nobody either here on Bitcointalk nor anywhere else can show me one. My own 30+ years of experience in computer architecture tells me that the technology has no other viable uses because it will never scale and doesn't solve any real-world problems, but I'm willing to be proven wrong. So far I haven't been.

[...]
You're claiming you don't see any value in Bitcoin and it doesn't solve any real world problems.  You're also attempting to assert that institutional investors getting involved somehow has a bearing on the value proposition, which is not the case.
[...]

I never claimed either of those things. Obviously Bitcoin solves a strong consumer need, which is why it has been bid up to the value it has.

I also never made any claim that institutional investors would particularly care one way or another about blockchain technology.

I did claim--and I stand by this--that the ETF and the resultant interest by consumers, and therefore the resultant interest by institutional investors, could affect the price, and I made an argument here that the result could be downward pressure on the price for the reasons I listed.

Bank bail-outs/bail-ins are a real world problem.  
[...]
Inflation is a real world problem.
[...]
Censorship is a real world problem.
[...]

I'll take these one at a time.

First, bank bailouts. There has already been several instances of the government intervening in crypto concerns in order to protect consumers, e.g. FTX. You might say, "but you technically don't need to use an institution to invest in Bitcoin", but most consumers don't invest that way nor do they want to.

This has been my thesis here all along: most consumers do not want to hide their life savings under a mattress, or in their iPhone. They want an institutional account that is protected based on their personal identity. Hence most average consumer investors in Bitcoin and other cryptos don't pay attention to the "decentralized" mythos of Bitcoin at all and instead just see it as a meme to invest in.

If the "OG" Bitcoin community here wants to kick these people out, then do that--but guess what will happen to the price of Bitcoin et. al. when all of those consumers are kicked out? That's my thesis here.

As for inflation, both USD and BTC are investment instruments, as is gold, land, bonds, soybean futures and so on. To say that your new investment instrument "solves" inflation is circular reasoning: you are essentially promising the price of Bitcoin will go up in value compared to the value of USD, which is a promise nobody can make.

And let's get real here: no investment advisor in the world would tell somebody to put their life savings in Bitcoin--instead of, say, land--in order to hedge against the US Dollar. Bitcoin and other cryptos are speculative, volatile investment instruments which may or may not go up in value.

As for "censorship", what you are actually talking about here is allowing citizens to engage in illegal activity. I am quite sympathetic to those living under terrible governments who need protection from corruption, and I'd wish them every tool at their disposal to save themselves. But if you are saying it's really "terrible" that American citizens can't trade with Russia right now, suffice it to say that the majority of our elected representatives don't agree with you right now, and the solution is to go through the democratic process, not go against your own government.

And for what it's worth, Bitcoin is a public ledger so Bitcoin itself (as opposed to say Monero) is not a good example of that use case. Based on the difference in market cap between Bitcoin and Monero, I would surmise that most consumers don't care about that level of anonymity--they mostly want to keep their purchases from marketers, their friends and spouse, or from incompetent storefronts who would leak their personal data to criminals. That level of anonymity is given to you by Monero (or other cryptos if you engage in complicated tradecraft), but it's also given to you by non-blockchain digital currencies ala Haypenny, which is far easier for consumers to work with.

[DooMAD]

You're claiming you don't see any value in Bitcoin and it doesn't solve any real world problems.  

I never claimed either of those things.

Then I'm not sure in what context you meant:

it's really only useful as a meme investment instrument with no inherent value beyond its own name

That sounds an awful lot like you saying it's not useful and it doesn't have value.  Perhaps you could clarify?  

I did claim--and I stand by this--that the ETF and the resultant interest by consumers, and therefore the resultant interest by institutional investors, could affect the price, and I made an argument here that the result could be downward pressure on the price for the reasons I listed.

As long as we're drawing a clear distinction between "price" and "value", then that's fine.  But again, you did say "value" in the quoted text above.  Only speculators see price and value as the same thing.  

most consumers do not want to hide their life savings under a mattress, or in their iPhone. They want an institutional account that is protected based on their personal identity. Hence most average consumer investors in Bitcoin and other cryptos don't pay attention to the "decentralized" mythos of Bitcoin at all and instead just see it as a meme to invest in.

If the "OG" Bitcoin community here wants to kick these people out, then do that--but guess what will happen to the price of Bitcoin et. al. when all of those consumers are kicked out?

People are absolutely free to do that, as many still seem to do with centralised exchanges, but they are somewhat missing both the point and the protections that were built into the design of the protocol.  I won't pretend that isn't a serious issue.  But I would suggest that most of them are speculators and, as such, they care far more about the price than I do.  If them using Bitcoin in a way it wasn't designed to be used results in some event that rattles confidence the market and the price drops, so be it.  I'm not particularly worried about that, personally.  That still doesn't have any impact on what I recognise to be the real "value" here.  

I don't think anyone here wants to "kick them out", but I do sincerely hope that some of them reconsider their choices before something happens to their chosen custodian and they lose everything.  It's inevitable that another big exchange or webwallet is going to suffer a breach before long.  And it'll keep happening while people continue placing trust in them.  That's just how it is.  All I can do is offer warnings and encourage personal responsibility.  Granted, that carries its own risks too, but it's still widely considered to be safer than trusting total strangers you've never met.

These new ETF investors have greater protections, but are still missing the point and most of the main benefits of actually using Bitcoin, but each to their own.  And custodial risk is still present.

As for inflation, both USD and BTC are investment instruments, as is gold, land, bonds, soybean futures and so on. To say that your new investment instrument "solves" inflation is circular reasoning: you are essentially promising the price of Bitcoin will go up in value compared to the value of USD, which is a promise nobody can make.

I make no promises on how the market will behave.  It's going to do what it does with or without my comments.  Trying to merely predict what the market does is often a fool's errand, let alone making promises about it.  But I'm quite confident I'm not wrong to state, unequivocally, that Bitcoin won't change its rules regarding monetary supply and that's an incredibly desirable property in a climate where people are becoming tired of quantitative easing and helicopter money.  Even if you don't want to accept it as a "solution" to what's generally happening in fiat, you can't deny some people see value in that.

As for "censorship", what you are actually talking about here is allowing citizens to engage in illegal activity. I am quite sympathetic to those living under terrible governments who need protection from corruption, and I'd wish them every tool at their disposal to save themselves. But if you are saying it's really "terrible" that American citizens can't trade with Russia right now, suffice it to say that the majority of our elected representatives don't agree with you right now, and the solution is to go through the democratic process, not go against your own government.

And I hope your government remains as democratic as it purports to be.  But things change.  Political ideologies shift.  Governments can become more authoritarian over time.  Sometimes an entire populace can be duped into voting against their own self interests and they don't even realise until it's too late.  Coups happen.  Dictators rise.  There are so many times in history when incredibly vile and repugnant people have gained positions of influence or control and committed unspeakable acts.  So let's be clear that "illegal" doesn't always equal "immoral".  

[legiteum]

You're claiming you don't see any value in Bitcoin and it doesn't solve any real world problems.  

I never claimed either of those things.

Then I'm not sure in what context you meant:

it's really only useful as a meme investment instrument with no inherent value beyond its own name

That sounds an awful lot like you saying it's not useful and it doesn't have value.  Perhaps you could clarify?  

Yes, and names can be very valuable. Ask Gucci or Nike or any major sports team. Bitcoin has a brand that's worth hundreds of billions. I never said nor meant to imply that Bitcoin is "worthless".

As for inflation, both USD and BTC are investment instruments, as is gold, land, bonds, soybean futures and so on. To say that your new investment instrument "solves" inflation is circular reasoning: you are essentially promising the price of Bitcoin will go up in value compared to the value of USD, which is a promise nobody can make.

I make no promises on how the market will behave.  It's going to do what it does with or without my comments.  Trying to merely predict what the market does is often a fool's errand, let alone making promises about it.  But I'm quite confident I'm not wrong to state, unequivocally, that Bitcoin won't change its rules regarding monetary supply and that's an incredibly desirable property in a climate where people are becoming tired of quantitative easing and helicopter money.  Even if you don't want to accept it as a "solution" to what's generally happening in fiat, you can't deny some people see value in that.

The limited supply trait is extremely important, I agree. And yes, people see value in something that cannot inflate.

As for "censorship", what you are actually talking about here is allowing citizens to engage in illegal activity. I am quite sympathetic to those living under terrible governments who need protection from corruption, and I'd wish them every tool at their disposal to save themselves. But if you are saying it's really "terrible" that American citizens can't trade with Russia right now, suffice it to say that the majority of our elected representatives don't agree with you right now, and the solution is to go through the democratic process, not go against your own government.

And I hope your government remains as democratic as it purports to be.  But things change.  Political ideologies shift.  Governments can become more authoritarian over time.  Sometimes an entire populace can be duped into voting against their own self interests and they don't even realise until it's too late.  Coups happen.  Dictators rise.  There are so many times in history when incredibly vile and repugnant people have gained positions of influence or control and committed unspeakable acts.  So let's be clear that "illegal" doesn't always equal "immoral".  

I completely agree that "legal" and "moral" are two different things, and I tried to caveat that in my post.

That said, if you are relying on cryptocurrencies to get you out of the thrall of a government that really wants to get you, you are in a precarious state regardless. An evil dictator could make using crypto a crime, and then send out thousands of honey pots all over the Internet to catch his prey, and effectively outlaw Bitcoin because people would be rightfully terrified to try using it (to take just one example off the top of my head). You might be able to stay safe if its some small government somewhere, but if its the USA, well, forget it. We're in big big trouble if it's the US government that falls to tyranny, and neither Bitcoin nor any other technology would keep anybody safe...