Investing in Bitcoin for the Best Interest of Spot ETF Issuers - Analyzing Web 3.0.
Holding Bitcoin in ‘best interest’ of spot ETF issuers — Analyst

What Is Web 3.0 and How Can We Prepare for It?

Amid the ongoing buzz about the potential approval of a spot Bitcoin (BTC) exchange-traded fund (ETF) in January 2024, some industry analysts have raised concerns about associated issues, such as backing. Josef Tětek, a Bitcoin analyst at the hardware crypto wallet firm Trezor, commented in December 2023 that spot Bitcoin ETFs may lead people away from self-custody and potentially create “millions of unbacked Bitcoin.”

Tětek’s statement has sparked debate in the crypto community, with some considering it to be FUD. Others have questioned how one would be able to verify that an ETF issuer is actually holding Bitcoin for its clients. Some crypto observers have suggested that it would be beneficial to see “actual on-chain addresses” published alongside the issuers’ BTC holdings reports.

As the crypto industry continues to evolve, it is essential to understand the concept of Web 3.0 and how it will shape the future of blockchain technology. Web 3.0 is an umbrella term used to describe the next generation of the internet, which will be based on decentralized protocols and distributed ledger technology. It will enable users to interact with the internet in a more secure and transparent manner, as well as provide new opportunities for businesses to interact with customers. To prepare for the arrival of Web 3.0, it is important to learn about the technology and how it works, as well as understand how it will impact businesses and how to build a website using the new protocols.

What is Web 3.0 and How Does it Work?

According to David Gerard, author of the book and crypto blog Attack of the 50 Foot Blockchain, it is “unlikely” that ETF administrators would create “unbacked BTC equivalents or misrepresent their backing assets.” Gerard told Cointelegraph that “this is regulated finance by well-known entities, and I don’t think unbacked ETF shares is a realistic threat model.” He did not elaborate on whether clients would be able to track BTC holdings by issuers.

Eric Balchunas, a Bloomberg ETF analyst, compared spot Bitcoin ETFs to gold ETFs, saying that a spot BTC ETF would be very similar. He noted that gold ETFs have been around for 20 years and that State Street provides daily updates on the custodian’s gold holdings. Balchunas remarked that the same would be true for a spot Bitcoin ETF.

For those considering investing in Web 3.0, it is important to understand how it works. Web 3.0 is a decentralized platform that enables users to interact with each other and the internet directly. It is different from Web 2.0 in that it eliminates the need for a centralized intermediary, allowing users to access and interact with data without relying on a third-party. To prepare for Web 3.0, it is important to learn about the technology, its implications for businesses, and how to build a website that is compatible with the platform.

The Impact of Web 3.0 on Investment

Balchunas pointed out that firms such as BlackRock and Grayscale are “extremely exposed” to the volatility of Bitcoin. “Let’s say they weren’t investing in Bitcoin, like Sam Bankman-Fried, and all these people had shares in Bitcoin,” the analyst said, and added:

The only thing that may not be attractive in the current spot Bitcoin ETFs – in their most likely form of cash-creation – is that the investor will not receive Bitcoin instead of cash.

“But if you are the type of person who wants Bitcoin back, just own it directly,” Balchunas suggested, referring to self-custody, which is thought to be an important part of Satoshi Nakamoto’s original vision of Bitcoin.

“But anyone who owns a mutual fund or ETF, and in total they have $30 trillion in assets, no one wants to touch the underlying,” the Bloomberg ETF analyst emphasized.

Understanding Web 3.0

Some industry observers are certain that ETFs have the potential to lead to paper Bitcoin claims, while others are confident that there is no reason for ETF providers to misrepresent their BTC holdings in the cash-create model.

Tomáš Tětek, an expert on the subject, told Cointelegraph that the only way to guarantee that ETFs will not lead to paper Bitcoin claims is if the ETF shares are redeemable for actual Bitcoin. However, since the proposed ETFs are cash in, cash out, holders will have to trust without any option to verify.

In order to understand how web 3.0 works, how it will impact business and how to prepare for it, it is important to learn about web 3.0 and how it is different from web 2.0. Building a web 3.0 website is also possible, and can be done by following the right steps.

Additional reporting by Ana Paula Pereira.

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