Will the story of Bitcoin change if the ETF gets approved? | CoinDesk JAPAN | Coin Desk Japan

What does Bitcoin exist for?

Purpose of Bitcoin

Bitcoin (BTC) ETF (exchange traded fund) applications by major financial institutions have been announced one after another, and Bitcoin is approaching “financial institution”. This brings urgency to long-standing and still unanswered questions about Bitcoin’s purpose.

Is Bitcoin an alternative store of value (like gold, for example) whose price is driven by its attractiveness as a safeguard against fiat currency depreciation? (This view could be called the Michael Thaler perspective of Bitcoin bulls.)

A means of payment for those who have been for some reason excluded from the financial system? (You could call it the Salvadoran perspective)

Is it an activist tool, a mechanism to counter power? (“Human Rights Foundation” perspective)

Or is it best to take a more liberal way of thinking and see it as a non-stop platform for archiving where users can record content of a wide range of value? (Bitcoin NFT project “Taproot Wizards” perspective)

I like to think the answer is “all of the above”.

But once the US Securities and Exchange Commission (SEC) approves ETF applications for BlackRock, Widsom Tree, and Invesco (given the SEC’s stubbornness in the past, (highly hypothetical), and against EDX Markets, a new cryptocurrency exchange backed by financial giants such as Fidelity Digital Assets, Charles Shwab and Citadel Securities. Such a liberal, inclusive view would get less attention if the SEC endorsed it.

Financial advisors looking to sell these products to mainstream clients want a simple story. The question is, which story?

inflation hedge?

Perhaps most sincere, Bitcoin is an uncorrelated asset whose price moves independently of other assets over the long term, offering more stability to a portfolio of diverse assets, stocks, bonds, You would describe it as an asset that holds value when commodities are falling.

But financial advisors and mainstream clients aren’t satisfied with that. They’re already well trained in thinking about diversification and hedging, but there’s usually an event-driven story behind it.

For example, when a recession looms and expected earnings decline, investors may balance the decline in the value of volatile-return assets like stocks with exposure to fixed-return assets such as bonds.

In this way, the story of Bitcoin as an “inflation hedge” is often captured. But the truth is, it’s not that simple.

Bitcoin’s fall in 2022 as inflation hits the global economy undermines the popular short-term view that Bitcoin’s price should accelerate just as consumer price inflation accelerates. bottom.

On the other hand, from a long-term perspective, Bitcoin’s story as an inflation hedge holds up. Bitcoin, which has risen more than 150-fold over the past decade, has helped long-term holders offset the declining purchasing power of the dollar more effectively than any other widely available asset.

But the problem is that the financial industry wants a short-term story. After all, financial institutions are evaluated and rewarded quarterly. Ideally, if X becomes Y, then Bitcoin becomes Z. But Bitcoin is not so easily predictable.

Still, I predict that Wall Street will lean toward a “Michael Thaler perspective.” While many ETF investors may be happy to bet that the price will “go up” without worrying about why it goes up, the well-regulated industry of Wall Street sees it as an outright gamble. You cannot sell products. So the idea of ​​a long-term store of value becomes most comfortable.

The story of “digital gold”, an existing analogy familiar to American investors, the story of an asset whose price fluctuates without being affected by monetary policy, is the easiest to tell. Skeptics will naturally recall the experience of 2022, when gold rose while bitcoin fell amid growing prospects for a rate hike by the US Federal Reserve. Wall Street ETF operators have no choice but to shake off such doubts with their long-term narrative around buy-and-hold retirement strategies.

Impact on policy decisions

One reason stories like this are important is because they drive policy decisions. If Bitcoin is seen only as a hedging vehicle for investors, it fits perfectly into the regulatory trend currently underway in US politics.

Bitcoin has escaped the current SEC crackdown on labeling all other crypto assets as “securities” except perhaps Ethereum (ETH), but the hedging narrative is Bitcoin. It strengthens the position of regulations that indirectly curb the expansion of use cases, even if the price is not the same.

The most important of these are those related to privacy, know your customer (KYC) rules, and more. As big financial institutions add bitcoin to their investment portfolio or recognize it as a form of money, the need for privacy becomes even stronger.

But the more the debate in the US centers around investment strategies as a store of value, the harder it will be to oppose increased KYC requirements by regulators. After all, a rule-abiding financial institution has nothing to lose by supporting regulatory oversight. And if demand from consumers is strong even in a bear market, as some financial institutions suggest, they have a lot to gain.

For the millions of people who want the Bitcoin protocol to be a tool for financial inclusion and a safe way to move money within oppressive systems, this is the answer. Not good news.

Furthermore, less favorable news for the new breed of developers working on Bitcoin-based tokens, such as the “Taproot Wizards” project, which is developing something akin to NFTs on the Ordinals protocol, and the new BRC-20 tokens. isn’t it.

KYC at the exchange level prevents such innovative projects from reaching mainstream audiences around the world. Especially if initiatives like the Financial Action Task Force on Money Laundering (FATF) “Travel Rule” indirectly mandate reporting rules for self-custody wallets.

“I don’t care about bitcoin”

But let’s take a deep breath here. “Bitcoin doesn’t care,” said one fan who considers it a “currency honey badger” (an animal notoriously tough: its resilience compares Bitcoin to a honey badger). The Bitcoin network just stacks blocks and continues regardless of what American politics or Wall Street plans to do with its investments and transactions.

The Bitcoin protocol cannot be stopped. Even as ETFs get approved and mainstream Bitcoin investment surges, leading to higher prices and more hash power into mining networks, its “unstoppable” quality will only grow stronger.

Given a protocol like this that is open source, uncensorable, and unstoppable, until innovators do what they always do. Innovation. There is, of course, a way around everything. There will be new ways to leverage Bitcoin as a use case without the constraints of US politics and Wall Street regulation.

As such, the key points in the ETF’s move to “financialize” Bitcoin are that Bitcoin wants to challenge its labeling and traditional role, and that the financial world seeks to define and control Bitcoin. It symbolizes the intensification of the game of chase and chase of mice and cats between the rulers of

I think the rat (or honey badger) wins in the end.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜ Original: Will BlackRock’s Bitcoin ETF Take the Spirit Out of the Honey Badger?