BlackRock, a multinational investment firm, shocked many in the cryptocurrency industry in June when it submitted an application for an exchange-traded fund (ETF), the iShares Bitcoin Trust. The aim is to overcome the US regulators’ decade-long resistance to cryptocurrency ETFs. A spot bitcoin ETF would be tradable on a traditional exchange and would track the market.
While proponents argue that ETFs are tax-efficient, easy to trade, and cheap, BlackRock’s approach is arguably wrong. It’s important to remember that ETFs don’t have the same focus or goals as Bitcoin (BTC).
Problems with the traditional financial sector
The traditional financial sector has long been dominated by institutions that control the flow of capital and dictate funding conditions. Many people feel disenfranchised by these institutions and feel that they have limited access to wealth creation, creating barriers for individuals and small businesses.
Related: Bitcoin ETFs: Even worse for crypto than centralized exchanges
Therefore, the introduction of cryptocurrencies presented a significant opportunity to offer an alternative to the traditional financial system that promises more autonomy, inclusivity and transparency. However, the merging of traditional finance and decentralized finance (DeFi) is critical to mass adoption.
Next deadline for the Bitcoin ETF is August 13th
(But this is for resubmitting the ARK)
Will likely be postponed IMO while most eyes will be waiting for the September 2nd deadline for the BlackRock ETF
BlackRock is likely the first to grant approval, if any, as the rest are just now filing a new application pic.twitter.com/h2ESr6aMnp
— Rager (@Rager) August 5, 2023
We need to move towards an industry where DeFi can serve legacy financial institutions rather than treat them as targets. Big banks and players want to get into the crypto industry, but there’s also a chance that the general public will step into this new world in the future and grapple with the many limitations or barriers that come with the traditional financial sector. The introduction of ETFs represents the financial industry’s attempts to incorporate cryptocurrency innovation.
ETFs encourage centralization
There are many different types of cryptocurrency exchanges. The most popular are centralized exchanges – like FTX. Centralized exchanges store the private keys to their customers’ wallets and generally require users to undergo a Know Your Customer (KYC) process to curb illegal and illicit activities.
In contrast, decentralized cryptocurrency exchanges are based on a decentralized, non-custodial blockchain system that supports direct peer-to-peer transactions. This approach essentially eliminates the need for intermediaries. Users don’t have to complete the KYC process – which means people living under repressive governments have the opportunity to participate. They also retain autonomy over their private keys and are solely responsible for the security of their funds – which they can use to earn interest.
Related: Don’t be naive – BlackRock’s ETF will not be bullish on Bitcoin
Crypto’s ability to provide these benefits — especially for unbanked users who don’t have access to traditional banking services — is the crux of the industry.
ETFs, on the other hand, are inherently centralized products, which conflicts with the decentralized nature of Bitcoin and other cryptocurrencies. They do not offer the benefits that form the basis of cryptocurrency, nor do they encourage new users to get involved.
ETFs not only undermine the core principles of Bitcoin, namely decentralization and trusted transactions, but also bring with them the problem of “paper” Bitcoin – BTC that only exists on paper. Since you are unable to withdraw the “Bitcoin” you claim to own, the prospect of FTX-like disasters in the future becomes much more likely.
We need to demystify cryptocurrency – not create a “crypto for dummies” fund
Most people don’t understand the basics of bitcoin, non-fungible tokens, or cryptocurrencies in general. It is vital that those of us who are involved with cryptocurrencies find a convenient entry point into the crypto world for the general public to participate in. The demystification of cryptocurrencies and bitcoin will lead to wider adoption. Converting Bitcoin into an easily tradable asset could weaken its role as a revolutionary decentralized currency.
Traditional finance should be used as a stabilizing force. Its structures could potentially provide stability for the volatile crypto market. If done right, they could provide security, accessibility, and trust, and even attract more mainstream investors to cryptocurrencies. Tight regulatory oversight could also legitimize bitcoin and cryptocurrencies for the general public and financial institutions.
There is an enormous need for further development in traditional finance. Institutions need to adapt and evolve to fully utilize cryptocurrencies. They should embody the ethos of decentralization and autonomy that cryptocurrencies represent, rather than simply incorporating Bitcoin into existing structures. And that means BlackRock should consider canceling its Bitcoin ETF.
Daniel Servadei is co-founder and CEO of Sellix, an e-commerce platform based in Italy.
This article is provided for general informational purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect the views and opinions of Cointelegraph.
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