Crypto Quill

Bitcoin ETFs, or exchange-traded funds that track the price of the leading cryptocurrency, have been gaining popularity and approval in the US market. However, not everyone is convinced that they are a good idea. Dennis Kelleher, the president and CEO of Better Markets, a non-profit organization that advocates for financial reform, has expressed his strong opposition to Bitcoin ETFs in a recent interview.

What are Bitcoin ETFs and why are they controversial?

Bitcoin ETFs are investment products that allow investors to buy and sell shares that represent a fraction of a Bitcoin. Unlike directly owning Bitcoin, which requires a digital wallet and a secure storage method, Bitcoin ETFs can be traded on traditional stock exchanges and brokerage platforms. This makes them more accessible and convenient for mainstream investors who want to gain exposure to the cryptocurrency market.

However, Bitcoin ETFs also come with some drawbacks and risks. For one thing, they do not actually hold Bitcoin, but rather Bitcoin futures contracts, which are agreements to buy or sell Bitcoin at a specified price and date in the future. This means that they are subject to the volatility and unpredictability of the futures market, which may not reflect the true value of Bitcoin. Moreover, Bitcoin ETFs incur additional fees and expenses, such as management fees, trading commissions, and futures contract premiums, which can erode the returns of investors.

Another issue with Bitcoin ETFs is that they may have a negative impact on the underlying Bitcoin market. Some critics argue that Bitcoin ETFs could increase the demand and price of Bitcoin futures contracts, which in turn could drive up the demand and price of Bitcoin itself. This could create a speculative bubble that could burst at any moment, causing significant losses for investors and destabilizing the cryptocurrency ecosystem.

Why does Better Markets oppose Bitcoin ETFs?

Better Markets is a non-profit organization that was founded in the aftermath of the 2008 financial crisis. Its mission is to promote the public interest in the financial markets and to protect consumers and investors from fraud, abuse, and manipulation. According to its website, Better Markets believes that “finance should serve society, not the other way around”.

In an interview with Bloomberg TV, Dennis Kelleher, the chief of Better Markets, expressed his strong opposition to Bitcoin ETFs. He said that Bitcoin ETFs are “a terrible idea” and “a disaster waiting to happen”. He argued that Bitcoin ETFs are not suitable for retail investors, who may not understand the risks and complexities involved. He also claimed that Bitcoin ETFs are not regulated by the Securities and Exchange Commission (SEC), which is the federal agency that oversees the securities industry. He said that the SEC has “abdicated its responsibility” and “outsourced its authority” to the Commodity Futures Trading Commission (CFTC), which is the federal agency that regulates the futures and derivatives markets.

Kelleher also questioned the legitimacy and value of Bitcoin as an asset class. He said that Bitcoin is “not a currency, not a commodity, not a security, not an investment”. He said that Bitcoin is “a speculation, a gamble, a casino chip”. He said that Bitcoin has no intrinsic value, no utility, no productive use, and no social benefit. He said that Bitcoin is “a Ponzi scheme, a fraud, a scam”. He said that Bitcoin is “a threat to the financial system, the economy, and the society”.

What are the prospects and challenges of Bitcoin ETFs?

Despite the opposition and criticism from Better Markets and other skeptics, Bitcoin ETFs have been gaining momentum and acceptance in the US market. In October 2023, the SEC approved the first Bitcoin ETF, the ProShares Bitcoin Strategy ETF (BITO), which began trading on the New York Stock Exchange. Since then, several other Bitcoin ETFs have been launched, such as the VanEck Bitcoin Strategy ETF (XBTF), the Valkyrie Bitcoin Strategy ETF (BTF), and the Global X Blockchain & Bitcoin Strategy ETF (BITS). According to data from ETF.com, Bitcoin ETFs have attracted more than $1 billion in assets under management as of December 2023.

However, Bitcoin ETFs still face some challenges and uncertainties. For one thing, the SEC has not yet approved any Bitcoin ETFs that directly hold Bitcoin, rather than Bitcoin futures contracts. Many investors and experts believe that spot Bitcoin ETFs, which would track the actual price of Bitcoin, would be more efficient and accurate than futures-based Bitcoin ETFs. However, the SEC has been reluctant to approve spot Bitcoin ETFs, citing concerns about market manipulation, fraud, and custody issues. The SEC has also imposed strict conditions and requirements on the existing Bitcoin ETFs, such as limiting their exposure to Bitcoin futures contracts, requiring them to disclose their risks and costs, and monitoring their compliance and performance.

Another challenge for Bitcoin ETFs is the competition and innovation in the cryptocurrency industry. Bitcoin ETFs are not the only way for investors to access the cryptocurrency market. There are other products and platforms that offer similar or better features and benefits, such as Bitcoin trusts, Bitcoin funds, Bitcoin exchange-traded notes (ETNs), Bitcoin exchange-traded products (ETPs), and Bitcoin exchange-traded certificates (ETCs). There are also decentralized and peer-to-peer solutions, such as Bitcoin wallets, Bitcoin exchanges, Bitcoin lending platforms, and Bitcoin derivatives platforms. These alternatives may offer lower fees, higher returns, more flexibility, more security, and more transparency than Bitcoin ETFs.

Bitcoin ETFs are a new and controversial phenomenon in the financial markets. They offer a convenient and accessible way for investors to gain exposure to the cryptocurrency market, but they also come with some drawbacks and risks. They face opposition and criticism from some regulators, advocates, and experts, who question their suitability, regulation, and value. They also face competition and innovation from other products and platforms, which may offer better solutions for the cryptocurrency market. Bitcoin ETFs are still evolving and developing, and their future prospects and challenges remain to be seen.