The BITO Bitcoin ETF went live today. What does that mean?
First, let's take hold of a very old idea -- separating the proximate good and the long-term good. The two are not the same and the first does not always lead to the last. (That was certainly the case with Twitter.) Let's see if they are related with the Bitcoin ETF.
First, what is a Bitcoin ETF? Well, an ETF is an electronic trade future, which is a holding of currency, stock, etc that allows people to speculate on whether the held asset rises or falls in price. You can call and short it like you can stocks.
The primary benefit of an ETF is that it allows people to buy and sell the asset without having to know how to trade the asset itself -- in this case, cryptocurrency; ETF holders can trade the ETF like they do today. What this does is open up crypto to a more traditional audience, which increases the number of people interested in crypto. Good, right? Yes -- a proximate good. However, this will increase Bitcoin price volatility. Can that be used by more traditional whales (or governments) to drive the price down on Bitcoin and stamp out wealth accumulated by people they dislike? Possibly, but that's not a sure thing, and it's not the primary goal.
The primary goal here is what an Investopedia article said back in 2018.
Ultimately, a source at the SEC explained, "U.S. residents are sending money to all sorts of exotic locations to invest in unregulated [cryptocurrency] instruments with absolutely zero recourse for losing every cent they've put at risk...regulation will begin to solve those issues and keep client assets 'onshore.'
Let that sink in.
Yes, the SEC does think we're helpless morons, unable to assess risks we take, but more than that, their goal is to keep funds "onshore". Why is that important? "Onshore" funds are easier to track, control, and tax.
This is just more evidence of a long line of thinking that goes back years. Remember when the feds went after people holding money in Swiss bank accounts? What was all that about? The same thing. What was this recent working agreement between governments to set a 15% corporate tax rate? The same thing. The idea is to prevent money from flowing out of the US or flowing to places where we can't be taxed for it.
What the government doesn't want is a bunch of angry rich people whose wealth can amplify their sentiments. If you're seeing shades of the American revolution here, you're not alone. Many of the founding fathers spent their entire fortunes to win freedom from Great Britain. Does accumulation of wealth lead to casting off chains? The federal government apparently thinks so. People with money can do things that bleed power away from the government or even overthrow it.
Again, the proximate good is that Bitcoin becomes more popular.
The long-term good -- that we accumulate wealth individually -- does not necessarily follow. However, this time, I think we will see the long-term good follow the short-term good.
As long as Wall Street sat on the sidelines, the government could play off the crypto dweebs against the suit-and-tie investors. However, when crypto and Wall Street join forces, that puts the feds in a tight spot.
Still, let's consider the negative first. Is this a trial balloon to smoke out people the government considers dangerous? The more I think on this, the less likely that is. I think the SEC just blinked. The Wall Street donors have probably had enough of the SEC and the SEC cannot keep crossing them; while the government hasn't endorsed BITO, they have not opposed it (this is like a governor allowing a bill to pass without signing it). Bitcoin is probably too big to cancel at this point. Also, given how widespread anti-Biden sentiment has become, the administration desperately needs a win; how better to do that than to let the crypto people doing that weird thing using their tubes get into the stock market?
Stay SAFU! We are heading into the swamp.
(Image created from two separate images overlaid and blended.)