Experts fear Manipulation in Bitcoin After Approval of ETFs

Some analysts highlight the intrinsically decentralized nature of Bitcoin, arguing that, unlike gold, Bitcoin cannot be controlled in the long term regardless of the existence of ETFs.

As cryptocurrency investors optimistically await the approval of the first Bitcoin ETFs (Exchange Traded Funds) , opinions on their potential impact on the market are deeply divided.

Some see ETFs as a crucial step towards the mass adoption of Bitcoin, while others consider them a threat to the cryptocurrency’s decentralized ethos.

Since its creation, Bitcoin has always been hailed as a decentralized currency, a refuge from traditional currencies controlled by governments. But with the introduction of ETFs, many fear that the currency could be co-opted by traditional financial institutions.

The History and Controversies of ETFs

Historically, ETFs have been tools to democratize access to various asset classes. The first iteration of an exchange-traded product, or ETP, emerged in 1961 as a closed-end investment fund.

In 1983, it opened its reach to a wider range of investors, and in 1986, after being listed on the Toronto Stock Exchange, it gained a foothold on the United States Stock Exchange.

However, it was with the listing of Gold Bullion Securities, the first physical gold ETF, in March 2003, that the controversies surrounding ETFs came to the fore.

Suspicions have arisen that financial giants could be manipulating the price of precious metals through ETFs. At the heart of this debate was the idea that ETFs could use fictitious holdings to help companies hedge big bets on derivatives.

One notorious example was in 2020, when JPMorgan paid compensation to settle a lawsuit from the US Department of Justice. The bank was accused of manipulating precious metals futures between 2008 and 2016. This led to criticism that ETFs could be used as tools to manipulate the market.

Bitcoin and ETFs: A controversial marriage

The question now is whether Bitcoin could be the next victim. Earlier this week, Josef Tetek , a Bitcoin analyst at Trezor , a company that makes one of the most popular wallets on the market, raised concerns , arguing that ETFs could ‘turn’ Bitcoin into a fiat currency.

He believes that while the price of Bitcoin may rise in the short term with the introduction of ETFs, the long-term impact could be detrimental.

“Bitcoin ETF is one of the worst things that can happen to bitcoin adoption. It’s an attack on self-custody, replacing actual usage (whether as MoE or SoV) with stupid price speculation.

ETFs are much worse than brokers, as we can at least incite bank runs on brokers and test their solvency — and if they prove to be running a paper bitcoin Ponzi scheme, they will collapse before they get too big, e.g. FTX, BlockFi, etc.”

Josef’s view was echoed by others on Twitter (X), with one user arguing that a Bitcoin ETF would allow entities like Blackrock to buy and control large amounts of Bitcoin with other people’s money.

“A spot Bitcoin ETF would be a bad idea because it would allow Blackrock to acquire and control Bitcoin purchased with other people’s dollars ,” he said. “They will have a ‘seat at the table’ they don’t deserve. I believe you have no idea how bad this will be for ordinary people. We don’t want Mr. Fink sitting at our table.”

The big question is whether Bitcoin can really be manipulated like other assets. While some believe ETFs can be used to influence price discovery, others think otherwise.

Some analysts highlight the intrinsically decentralized nature of Bitcoin, arguing that, unlike gold, Bitcoin cannot be controlled in the long term regardless of the existence of ETFs.

Finally, the rise of Bitcoin ETFs certainly revisits the debate about the tension between mass adoption and preserving Bitcoin’s decentralized nature.

It is clear that the cryptocurrency community needs to carefully weigh the pros and cons as these products become more prevalent in the market.

Reference Source: Livecoins.com