ETFs the silent transaction killer

[Greyhats]

First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

[hd49728]

The general theme was that as paper bitcoin increase(etfs,dats etc)

They are not bitcoins, not paper bitcoins. bitcoins are bitcoins and there are nothing tries to have pegs, equivalence to bitcoins are bitcoins. Wrapped Bitcoin, Bitcoin Spot ETF shares are all not bitcoins.

there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

Adoption comes from realization of people on Bitcoin value, then they invest money in bitcoins, use bitcoins, and more. Transaction fees are only one part of Bitcoin miner income, another part is from Bitcoin block subsidy and some intelligent miners can be long term Bitcoin investors too so they will have benefit from Bitcoin adoption growth, price growth. It will not only cover drop of their income from transaction fee but even can help them earning more profit from passive income in holding part of their bitcoins received from mining.

[Russlenat]

They might just park their bitcoin, but that doesn’t mean it kills transactions. Bitcoin serves two purposes - some treat it as investment, others use it for spending. Even if many just hodl, there will always be people using it for transactions. And as Bitcoin gains more trust and price stabilizes, usage for payments will likely grow over time.

[Zlantann]

First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

Maybe your concern is that with the drop in transactions, miners' revenue will reducedrastically. And nobody will want to continue or invest in a business where they struggle to profit. This might reduce the number of miners and might affect the decentralisation of Bitcoin. Transactions will continue, but it has reduced over the years as people focus more on using Bitcoin as an asset rather than a currency. Bitcoin is a neutral asset; hence, people are free to use it the way they want. We cannot stop institutions from investing, nor people from putting money in ETFs. As Bitcoin adoption is increasing and as it becomes less volatile, I guess the use for payments will also increase.

[pooya87]

It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party

I disagree. Those who don't own bitcoin cannot be called holders. Keep in mind that if you buy an ETF or basically even when you buy bitcoin through a middle man who ends up controlling your coins, you DO NOT own bitcoin. You are just investing with that third party.

So are they going to decrease on-chain transactions?
I don't think so because I believe at the end of the day the number of people who invest with third parties in the name of bitcoin is going to remain lower than number of people who actually buy bitcoin themselves.

[mindrust]

Bitcoin ETF ain’t no Bitcoin.

Let’s say you are fully invested in a BTC ETF and your computer got hacked. The hacker wants ransom in btc. But shieet you can’t pay him with btc etf, he won’t release your data unless he sees btc increases his own btc wallet.

What you gonna do now? Will you let that mf delete all your pron archive you collected for decades? Nah you cannot afford that. You’ll buy some btc and pay him your stupidity tax.

Lesson learned, next time keep your pron archive in cold wallets.

[TastyChillySauce00]

First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

Even before ETF there's something called exchange which do things off chain.

ETF just allow institutional investor access to bitcoin that's deemed easier in legal aspect. Nothing more. The circulation will stay the same, after all the real bitcoin is in custody for any ETF.
As for the transaction itself. exchange is already doing what you desribed. So, honestly I don't really think ETF is the sole culprit here.

[Darker45]

I'm not specifically talking about ETFs but all paper Bitcoin, so pretty much all Bitcoin numbers that are found in all centralized and custodial services. Yeah, they're killing Bitcoin transactions.

I used to pay Bitcoin for some of my bills. All of those aren't on-chain transactions. Also, I know a lot of people doing Binance-to-Binance or Bybit-to-Bybit transactions. They're free, but they aren't on-chain transactions as well. I'm not sure if these people would still proceed with their transactions in Bitcoin if all of these were to be done on-chain but, yeah, they're doing everything off-chain thanks to those platforms.

[X-ray]

Definitely.

There are less on-chain transaction due to paper bitcoin. The wrapped bitcoin in L2 doesn't help either. They are basically the same as paper bitcoin.

On the bright side the fee is cheap so everybody who want to use bitcoin for spending, remittance, and so on can do just that right now. However, I think onchain tx will increase alongside adoption.

[adaseb]

What you are saying it is somewhat true but I don't think it will be much of an issue really. Sure when more ETFs get bought on the stock market, since they are spot ETFs, they need to buy the physical BTC from an exchange like Coinbase. So less BTC which can travel on the blockchain while its on the AUM of Blackrock.

However the more bitcoin goes up in value, many bitcoin holders will sell their BTC to take profit and this should drive up transactions. So more transactions on the network and more miner revenue. BTC transactions volume is low already and its not due to ETFS but due to the high blockfees from the past few years and people switching to Ethereum or other L2 to do smaller transactions.

[viljy]

Such an impact is possible, but it seems to me that it is not so strong that miners, due to the decrease in profits from fees, start turning off unprofitable capacities and the network hashrate would drop significantly, and then the difficulty of mining. Even so, the system is self-balancing, and the hashrate will stabilize at some level of mining profitability.

So I don't think there are any reasons for concern or gloomy forecasts for bitcoin from the activities of financial organizations operating bitcoin in various derivative forms. The real problem for the bitcoin network may be prolonged Internet outages on a global scale caused by some political events.

[BitGoba]

First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

Today, over 70% of Bitcoin monetary transactions occur daily on the Bitcoin Lightning , while about 30% happen on-chain. Of those on-chain transactions, 10–15% are pure spam, such as inscriptions, ordinals, and other useless junk.

ETFs will have a positive impact because accumulation and hodling by institutions push up the exchange rate As the Bitcoin exchange rate rises against the dollar and other fiat currencies, people become aware that Bitcoin will not disappear or go to zero. More and more people will want to adopt such money. Everyone prefers money whose purchasing power increases whether you are a fruit seller at the market, a mechanic, a restaurant owner, a lawyer, or a dentist everyone will want money that gains in purchasing power.People will start accepting Bitcoin for their goods and services. They will learn how to run their own nodes and open their own Lightning payment channels. As time goes on, more and more people will use Bitcoin, run their own nodes, and manage their Lightning channels, opening and closing them on-chain. In 30 years, having your own Bitcoin node and Lightning node with your own Lightning channels will be as common as most people having a POS device in their stores today.

[Ahli38]

First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

A Bitcoin ETF is very different from Bitcoin itself. Bitcoin ETFs aren't actually owned by their buyers or even investors don't even need a wallet. And this goes against the Not Your Keys Not Your Bitcoin concept. Bitcoin ETFs have a time limit for trading. And this is very different from the original Bitcoin concept, wehere everyone could trade Bitcoin at any time. So I personally prefer the original Bitcoin concept, where everyone has real Bitcoin and can trade at any time without any restrictions. Therefore I don't think this Bitcoin ETF deserves to be considered part of Bitcoin. Although it's said that every Bitcoin has an underlying asset held in cold storage by a leading global digital asset custodian (Source). I have no interest in it at all. And I think most people who understand Bitcoin's origins will also avoid it. Therefore I don't think it will have an impact on the decline in transactions. People will consider owning real Bitcoin rather than risking it on something that isn't real.

[Hatchy]

It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

You aren't a hodler if your money is with a third party. The term "hodler" is for those who control their own coins, not those who use an ETF or third party. Institutions can't possibly acquire all the Bitcoin. They are simply large investors, and their buying habits don't fundamentally change the circulation. Long before institutions got involved, there were early investors who bought Bitcoin and still hold more of it than any institution has ever purchased.

Theoretically, large scale holdings like ETFs could reduce the number of onchain transactions and lower fees. However, that isn't what's happening. The Bitcoin network continues to process a huge number of transactions daily.

[stwenhao]

when you buy bitcoin through a middle man who ends up controlling your coins, you DO NOT own bitcoin. You are just investing with that third party

Be careful, because that kind of wording can be used to justify, that "Lightning is not Bitcoin". In general, as long as you can locate your coins in the blockchain, and you can control them, then they are yours. The problem with ETFs, CFDs, WBTCs, and similar things, is that you cannot fully audit the system. You don't know, which UTXOs are in use. You don't make signatures, by using your own private keys. And that's where the difference lies.

So are they going to decrease on-chain transactions?

No, because it is a cycle: https://blog.lopp.net/content/images/2024/10/fees_cycle.jpg

1. High fees create efficient uses of block space.
2. Efficient uses of block space create low fees.
3. Low fees create inefficient uses of block space.
4. Inefficient uses of block space create high fees.

As long as block size limit is there, the cycle can work properly, and improve transaction format. When it becomes unlimited, like in BSV, or too high, like in BCH, or self-adjusted, like in Monero, then people are stuck in one of the steps of this cycle, their chain keeps growing, and there are no improvements, because there is no reason to optimize things, if you have nothing to optimize.

[retreat]

holder is a holder no matter where they are self custody or third party,

If you're a Bitcoin holder, then you're holding Bitcoin in your non-custodial wallet. If you hold a Bitcoin ETF, you're essentially just holding a shares that tracks the price of Bitcoin - they merely represent the price of Bitcoin; they aren't Bitcoin. So, you're not a Bitcoin holder; you're simply trying to profit from the price of Bitcoin without actually holding Bitcoin directly in your non-custodial wallet.

but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

The paper you're talking about is definitely ETFs.

Even if more people adopt ETFs, it won't lead to a decrease in transactions, as many people still conduct transactions using Bitcoin, whether it's purchasing goods or services, cross-border transactions, P2P transactions, or other transactions. Remember, Bitcoin functions as a decentralized transaction system, and many people still treat Bitcoin as such, not just for investment.

[Despairo]

ETFs is much more worse than centralized exchanges because you don't own Bitcoin and you can't even withdraw Bitcoin, so this definitely will reduce the transactions on on-chain.

It could be a silent killer if most people shift to buy ETFs version, currently it's not yet happen.

If someday Binance got hacked and not able to refund to all the clients, then the government make an announcement if they gonna backup every penny invested in ETFs, this could be a game changing for ETFs.

[adultcrypto]

First of all this isn’t an original idea, I read something somewhere and will definitely go pull the source. The general theme was that as paper bitcoin increase(etfs,dats etc) there will be less circulating bitcoin and thus transactions fees will be impacted negatively. It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party, but do you think this will have cause transactions to drop off over time as more adoption happens on the paper side?

From what we have seen so far, the approval of bitcoin ETFs have caused significant drop in onchain transactions as shown by empty mempool afterwards. Going by that, the answer to your question will be a yes but on the aspect of impacting negatively on transaction fees, I don't think it is correct because reduction in on-chain transaction have also lead to a significant drop in transaction fees.

[rat03gopoh]

I don't think it will "kill" transactions; I just see it as another form of storing bitcoin on centralized services or sending bitcoin internally between accounts on exchanges, and that's been the case for a long time.
Besides, are ETF holders real Bitcoin users? I suspect they've never even touched the bitcoin network before. They're just contributing to the volatility; they're just old-school people who don't want to worry about security which they consider complicated. Real bitcoin users will still make on-chain transactions if they want to at any time.

[9ja Amaka]

It sounds plausible, I’m a bit stuck on the a holder is a holder no matter where they are self custody or third party

I disagree. Those who don't own bitcoin cannot be called holders. Keep in mind that if you buy an ETF or basically even when you buy bitcoin through a middle man who ends up controlling your coins, you DO NOT own bitcoin. You are just investing with that third party.

So are they going to decrease on-chain transactions?
I don't think so because I believe at the end of the day the number of people who invest with third parties in the name of bitcoin is going to remain lower than number of people who actually buy bitcoin themselves.

I agree with you pooya87, when you dont have full privacy of your Bitcoin you dont own it. Third party may not take responsibility if anything happens,  the individual will be left with nothing at the end of the day.

There are several important reasons to why self custody should be prioritized, but its more about personal goals and concerns. If you dont have access to transfer your bitcoin out whenever you want, you are not in control and dont really own your coins. Being your own bank is probably the best.

The federal government has seized assets of third party companies holding huge asset, they can do it again.