Implications of the Bitcoin ETF Approval

Since January 2009, Bitcoin has been live, processing transactions with near perfect uptime. It’s a decentralized network that can’t be shut down, with just the right mix of economic incentives to ensure active and growing participation. The result — a global monetary network that every country will have to deal with.

I think we'll look back on this as the start of a generational shift away from legacy banking infrastructure. In other words, Bitcoin will do for money what the internet did for information.

Buying Bitcoin pre-ETF

If you have time, try buying Bitcoin and sending it to another address. All you need is the other address, a long unique string of characters, then the network (i.e. computers) takes care of the rest.

Now compare that with sending a wire. Using Bitcoin is faster, less expensive, and works 24/7/365. Once you can send and receive money via the Bitcoin network directly in your bank account, wires will no longer make sense.

But that’s only part of the story. The network itself stores programmable money. This is something we definitely haven’t had before. Much in the same way as we never could have envisioned Uber when GPS was added to smartphones, I expect we’ll be surprised at the innovations that Bitcoin will enable.

And it’s not just Bitcoin and related technologies like blockchains. The shift we’re experiencing is around removing friction where it’s not necessary. It's about transforming processes. Processes that are so rigid they were untouchable until the internet reached a certain level of ubiquity. It just happens that many of these rigid processes touch money. As a result, this makes Bitcoin the perfect catalyst.

Bitcoin ETF approval

As of last week, you no longer have to jump through extra hoops to gain exposure to Bitcoin, you can purchase shares of a Bitcoin ETF directly in your brokerage account.  This is a monumental shift, as many organizations and individuals will buy Bitcoin that wouldn’t have otherwise.  

Some organizations, including government entities, have not purchased any Bitcoin mainly because the additional risk and/or cost of administering in a controlled manner isn’t acceptable.  If these organizations take their large pools of investment funds and allocate even a couple percentage points toward Bitcoin, that would represent an unprecedented inflow of funds to the Bitcoin network.  The supply is capped, there will never be more than 21 million Bitcoin and these new ETFs will need to scoop up any available Bitcoin to satisfy demand.  

Of course the ETF approach only takes advantage of the store of value benefit to Bitcoin.  If you purchase shares of an ETF, you don’t get some of the key benefits that Bitcoin offers.  Direct ownership and ability to transfer digital money are two key features of Bitcoin that an ETF can’t offer.  

That said, the additional funds flowing into the Bitcoin network from ETFs have the potential to fuel development of the network, including new protocols and related infrastructure.  A rising tide lifts all boats, which certainly true within the digital assets industry. Historical increases in the price of Bitcoin have spurred innovation on Bitcoin, Ethereum, and other decentralized networks.

The inflows from Bitcoin ETFs also invite a bit more control of the network by large financial institutions and governments. Many proponents of Bitcoin for self-sovereignty and decentralization are worried about how this will change the course of digital assets.  After all, Satoshi Nakamoto, the anonymous creator of Bitcoin, included a message in the first block of the Bitcoin blockchain that reads “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” Bitcoin was born out of the failure of the existing financial system.

Good or bad, it’s clear the Bitcoin ETF approval is a watershed moment for the digital assets industry. The group of ETFs launched last week experienced record trading volume in their first few days. The world wants to buy Bitcoin.

About the Author:

Ben Taylor is the CEO and Co-Founder of SoftLedger. A CPA with more than 10 years of varied public and private accounting experience, he has led many complex financial projects to successful outcomes.