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Bitcoin ETF: Is the vision of bitcoin and Web3 at risk?

One of the biggest news of 2024 is the announcement by the US Securities and Exchange Commission (SEC) that they have approved the first US-listed exchange-traded funds (ETFs) to track Bitcoin. In the announcement, the securities regulator said it had approved 11 applications, including BlackRock, Ark Investments/21 Shares, Fidelity, Invesco, and VanEck, among others.

The news brought much cheer to the financial sectors as well as the Web3 community, pushing Bitcoin prices up by three per cent and more than 70 per cent in the lead-up to the anticipation of this announcement. This also marks one of the first approved financial products that linked directly to cryptocurrency.

However, as the dust settled, a deeper look into the growing trends where the financial institutions are looking into digital assets as one of their products and services that runs contrary to the initial vision of Bitcoin (and, to a larger extent, the Web3 space) that Satoshi Nakamoto has set when he first published the Bitcoin whitepaper.

Nakamoto first published the Bitcoin whitepaper in 2008, a time when the sentiment and trust in the Government and financial sectors were at their lowest. It is during the time of financial crisis, with the collapse of Lehman Brothers and the Government bailout of financial institutions that were widely deemed as being reckless and greedy, were given a “free pass”.

In the whitepaper, Nakamoto proposed a utopia stage of a “purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution” using blockchain technology and cryptography.

Using such methodology removes the need to depend on the trust of another party (e.g. financial institutions, Government) and instead “based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”.

Also Read: What investors need to know about Bitcoin halving

In this sense, the birth of Bitcoin, and to a larger extent, the Web3 ecosystem, represents a possible new era – a vision where the world places focus on decentralisation and everyone is equal. It represents an era where power is not consolidated to the privileged few. Instead of relying on trust in institutions and humans, a philosophy of “code is law” will prevail, which removes any possibilities of biases, corruption and political motivation.

To put things in perspective, Bernard Madoff, who was nonexecutive chairman of Nasdaq and a heavyweight on Wall Street, managed to get away with his Ponzi scheme until the financial crisis in 2008 (confidentially the year when Bitcoin was born) when his investors requested their money back until the scheme could no longer hold.

During the investigation, the SEC inspector general H. David Kotz found that during the previous inspection, there was no follow-up on clear evidence of fraud from Madoff’s firm, and the SEC enforcement officers decided to take Madoff’s word that his operation was legitimate. This scandal highlighted that, in reality, trust can be misplaced, misused and being manipulated. It also begged the question – How much trust can be placed on an individual, an entity, or even a society?

Is Bitcoin’s ultimate goal – to make you rich?

Yes, it is true that when institutions start to put their money into Web3, it will be a boost for the community at large. Cryptocurrency prices would likely see a bear market once they start investing in it. In its Big Ideas 2024 report, Ark Invest estimated that Bitcoin’s price could reach US$2.3 million if 19.4 per cent of global assets were allocated towards Bitcoin. If this is true, it will make many of us instant millionaires, or even billionaires.

But is that the vision of what Nakamoto had in mind when he launched the whitepaper in 2008? Just as another product, an avenue for traditional finance institutions to leverage for their own profit?

What is important for the Bitcoin ETF is that it signifies the start for institutions to enter into this market that was previously left unregulated. ETFs, by their very nature, require a custodian to hold the underlying assets.

This means that investors will no longer have direct ownership and control over their Bitcoin holdings. Instead, they will be relying on a trusted third party to safeguard their investments. This goes against the very ethos of decentralisation and self-sovereignty that Bitcoin was built upon.

Also Read: Can Bitcoin help us in the fight against climate change?

Similar to gold and silver, it can be traded in the traditional market, somewhat like commodities. This might also mean that institutions could, in the future, retrofit their existing systems into the Web3 space and slap the existing rules and regulations to Web3 so that they can leverage Web3 as part of their arsenal in their daily businesses and investments in the world that they are comfortable with.

In this sense, aren’t Web3 moving backwards to Web2.5 or even Web2? More importantly, will Web3 become just another tool for the privileged few (whom society placed their trust on or being empowered with authority and trust) to get richer? And that nothing will change but remain status quo.

Yes, some might argue that Web3 should integrate with the traditional world and not try to overthrow or disrupt the existing system. But this system has been around for so long and with so many legacy issues and problems. Wouldn’t it be better to start afresh?

Sometimes, the best thing to do is to knock down everything and rebuild it. It might cause pain and suffering in the short term, but perhaps give a brighter tomorrow for generations to come. Is it a gamble worth taking? Rather than meeting it halfway – like using a cloak to pug any holes coming out.

Finally, if Nakamoto were here today with us and asked if he was satisfied with the development of his ideology and Bitcoin, what would he say?

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