In a recent blog post, Arthur Hayes, co-founder of BitMEX, has raised concerns about the potential impact of spot Bitcoin exchange-traded funds (ETFs) on the cryptocurrency. According to Hayes, if these ETFs become too successful, they could pose a significant threat to the fundamental nature of Bitcoin.
Hayes argues that the value of Bitcoin lies in its active and dynamic nature, as it moves through transactions on the network. However, spot Bitcoin ETFs are designed to accumulate assets and essentially lock them away in a virtual vault. If these ETFs gain overwhelming success and end up holding the majority of Bitcoin, investors may opt for Bitcoin derivatives instead of actively participating in transactions.
The consequence of this scenario, as outlined by Hayes, is a potential drying up of transactions on the Bitcoin network. Miners, who validate these transactions, would lose their incentive to continue operations, leading to a shutdown of mining activities. Without miners, the entire network could collapse, resulting in the disappearance of Bitcoin.
Hayes envisions a scenario where the success of ETFs managed by traditional financial institutions could ultimately destroy the essence of Bitcoin. He suggests that if Bitcoin becomes just another state-controlled financial asset, it may lose its original purpose as a decentralized peer-to-peer electronic currency.
Interestingly, Hayes speculates that in such a situation, a new cryptocurrency monetary network could emerge, potentially surpassing Satoshi Nakamoto’s original vision. He sees the beauty in this potential outcome, as it would provide people with a non-state-controlled monetary asset and financial system once again.
These reflections from Hayes come at a pivotal time, just ahead of the expected approval of pending spot Bitcoin ETF applications. Various major financial players, including BlackRock, Grayscale, Fidelity, and others, are awaiting a decision from the SEC regarding their applications, with analysts predicting a resolution between January 5 and January 10, 2024.