Is Investing in Bitcoin ETFs the Key to Crypto Adoption?

CoinList founder Andy Bromberg believes that spot Bitcoin (BTC) exchange-traded funds (ETFs) are just “watered down crypto” and a sign the industry is heading in the wrong direction, amid growing hype over potential ETF approvals in the United States.

Bromberg — also CEO of payments-focused wallet app Beam — told Cointelegraph: “If a Bitcoin ETF is considered crypto, we’ve failed as an industry.”

He said a Bitcoin ETF would “absolutely” be a net positive for crypto adoption but asserted the space’s success comes from helping people self-custody assets and decouple from the traditional finance system — the antithesis of a TradFi ETF.

Bromberg’s take is contrary to the prevailing sentiment of excitement around the potential for spot ETFs to bring in institutional money. Some predict ETFs could see Bitcoin’s market capitalization double and the price hit $150,000 by the end of 2024.

CoinShares head of research James Butterfill told Cointelegraph that setting up a wallet for safe self-custody was still a daunting task for many non-tech-savvy institutional and retail investors. He believes an ETF will improve market access and will “help further democratize Bitcoin.”

“Self-custody simply isn’t possible for many institutional funds, as it steps outside the regulated framework they must operate in,” Butterfill said, adding that it’s also the case for some retail investors.

Matrixport research head and Crypto Titans author Markus Thielen agreed and argued the reason so much crypto remains on exchanges despite a string of collapses is because self-custody is “still problematic for most users and has clumsy interfaces.”

Bromberg conceded that self-custody has historically been a challenge but pointed to technology such as account abstraction — which allows for wallet creation without using a seed phrase and more recovery options if access is lost — as proof it was possible to make “mainstream-usable self-custody.”

However, Bromberg raised the question of how web 3.0 technology will impact business and whether it will be possible to make money with it. He also asked if web 3.0 is even real, and how it differs from web 2.0.

Institutional investors need legal clarity, not ETFs

Bromberg believes that the best way to give institutional investors who want to possess crypto is for regulatory agencies to provide legal clarity and for the industry to provide education on technology and products that will enable institutions to safely store it themselves.

“There are already institutions that own crypto on their balance sheet, and others can follow,” Bromberg said.

Tesla, MicroStrategy and some crypto miners are among the public companies that report holding crypto, although it is not known what their custody arrangements are.

Butterfill suggested that Bitcoin ETF holdings would come under a regulatory framework that would “ensure high standards for custody.” He explained that some Bitcoin ETF providers could offer physical redemption, similar to certain gold-backed ETFs.

Wall Street suits won’t change Bitcoin

Other Bitcoin advocates are worried about the potential impact of major asset managers such as BlackRock on the Bitcoin network.

Peter McCormack, a Bitcoiner, told Altcoin Daily in October that a BlackRock ETF would be “good for price but bad for Bitcoin” and expressed fear that it could become the largest Bitcoin holder through its ETF.

Butterfill argued, however, that BlackRock would represent a “large and diverse set of clients” in a regulated environment, which is “very different from an individual or the power a government may have if there were such a large holder.”

The trading volumes of existing Bitcoin exchange-traded products usually account for a maximum of 5% of the total Bitcoin volumes daily, “so we have a long way to go before the ETPs can compete with the overall market,” he said.

Thielen welcomed the possible new Bitcoin owners, saying that BlackRock’s ETF would “open the door to thousands of institutional players” who, in his view, will use Bitcoin to replace “gold and other safe-haven assets such as Treasurys.”

He added that everyone has the right to own Bitcoin and that the cryptocurrency has become a speculative asset, mostly moving away from its peer-to-peer cash roots.