The price of bitcoin soared to its highest level in more than two years this week, as speculators bet that the first approved stock market funds for cryptocurrencies would open the door to a wave of new investors.
But some enthusiasts say the Wall Street takeover betrays their vision of crypto as an alternative financial system away from the prying eyes of government and mainstream finance, and cements bitcoin’s status as merely a vehicle for speculation.
“The founding principles of bitcoin and decentralised currency is really this cypherpunk, going against the grain, going against the big institutions,” said Xavier Nukajam, a crypto start-up founder from the UK. “If you create this alternative and have to submit to what already exists ... you’ve failed.”
That submission was underlined this week by the fanfare around the launch of bitcoin exchange traded funds, after more than 10 years of applications rejected by the Securities and Exchange Commission.
The funds enable investors to own bitcoin via a regulated vehicle listed on the stock market, without directly holding the cryptocurrency itself.
They are managed by established Wall Street giants including BlackRock, Invesco and Fidelity — a far cry from largely unregulated exchanges such as the collapsed FTX and Binance, which was fined US$4.3 billion ($6.8b) by US authorities last month for money-laundering and violating international sanctions.
The ETFs, which trade on the New York Stock Exchange, Nasdaq and CBOE Global Markets, racked up a collective US$4.37b of trading volume on their first day alone, according to CCData.
Franklin Templeton, the asset manager, tried to underline its newfound crypto credentials by turning the eyes of US founding father Benjamin Franklin in its logo into red lasers on social media — aping a popular meme denoting enthusiasm for bitcoin.
“It’s the end of a very long journey,” said Jean-Marie Mognetti, chief executive of asset manager Coinshares. “Bitcoin has graduated with distinction and is recognised as an investable asset class.”
Bitcoin has travelled a long way since its invention by Satoshi Nakamoto — whose true identity has never been revealed — in 2008. His famous “white paper” described a payments system that stood apart from mainstream financial institutions, instead relying on the public record of blockchain technology.
He and his early adherents championed the countercultural ethos of “cypherpunk”, with its emphasis on the power of cryptography to protect an individual’s privacy from the long arm of the state.
However, that vision has struggled to get real-world traction. Bitcoin’s use as a widespread tool for payments has been limited because it is too cumbersome and slow to verify transactions. El Salvador made bitcoin legal tender in 2021, but consumers there have mostly shunned it.
Its finite supply — the code that governs bitcoin allows only 21 million tokens ultimately to be created — led many to tout it as a hedge against inflation and the debasement of mainstream “fiat” currencies. That narrative took a hit last year when global inflation soared but the price of bitcoin tumbled.
Today, such uses for bitcoin are mentioned more rarely. But its status as a speculative asset, albeit a highly volatile one, has been bolstered by its recent rebound and underlined by this week’s fund launches.
The excitement surrounding bitcoin ETFs “just exposes how hollow the bitcoin narrative always was”, said Hilary Allen, professor of law at American University Washington College of Law. “Anyone who knew anything about economics or finance could have told you from day one bitcoin was never going to work as a payment system.”
Allen added: “People have been in this to make a quick buck and having ‘number go up’,” - a reference to a popular boast among crypto devotees about their market gains.
US regulators, nervous of the scandals that have plagued the crypto world in recent years, seem inclined to agree.
Although the SEC approved the ETFs, chair Gary Gensler was keen to stress that the agency had been pushed into its decision by a US federal appeals court ruling last northern summer. “We did not approve bitcoin,” he said.
He noted that underlying assets in other ETFs, such as metals, had consumer and industrial uses. “Bitcoin is primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money-laundering, sanction evasion and terrorist financing.”
Fellow SEC Commissioner Caroline Crenshaw, who dissented from the approval, warned that spot markets remained open to fraud and manipulation.
Still, some in the industry see a newfound respectability for bitcoin, whose price has soared nearly 1300 per cent over the past five years, far outstripping other assets.
“I think a lot of the libertarian vision was frauds and the s**tcoins,” said Andrew Bond, senior research analyst at Rosenblatt Securities, referring to smaller cryptocurrencies often launched to make a quick profit for their founders.
“If you look at where there’s been regulatory action, where there’s been problems with the crypto space, it hasn’t been bitcoin.”
Crypto advocates are hoping that the ETFs will boost the bitcoin price because the issuers will be required to buy the token on behalf of their customers. The coins will be held at a custodian, and the issuer will create and redeem shares to represent the owners’ share of the pool.
Jad Comair, founder of digital asset investor Melanion Capital, bought his first bitcoin in 2013.
“You had all these technological hurdles,” he said.
”I was really worried about losing my phone and as a result losing my bitcoin forever. Now, you’re in the hands of the biggest players in finance like BlackRock and Fidelity, and you know they’re going to take all the necessary measures to safeguard people’s assets.”
The greatest impact may yet be on the crypto exchanges which have been the only option for people who want to hold bitcoin for the long term.
“There will now be a bifurcated market in crypto,” said Alison Jimenez, president of Dynamic Securities Analytics, a securities litigation consultancy. “Those that still want to trade crypto will still go to these exchanges. Those that want to hold bitcoin as an investment will just take the simpler and more straightforward ETF route.”
For some, the introduction of regulated third parties like custodians, exchanges, asset managers and market makers is an example of another emblem of a counterculture that became commoditised by mainstream finance.
James Angel, associate professor at Georgetown University, pointed out that alcohol and cannabis had once been illegal but have since become traded assets.
“In the same way, bitcoin was seen as an outlaw outside of the respectable space of investments, and now it’s taking its place in the old boys’ club,” he said.
“Wall Street is really good at selling stuff, they’ll sell anything they can make a buck on.”
Written by: Nikou Asgari and Scott Chipolina in London
© Financial Times
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