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Are ETF's such as the Bitcoin fund good or bad for Bitcoin?

Ever since the Winkelvoss twins announced that they are filing to create a Bitcoin ETF there has been discussions about whether or not this will be good for the Bitcoin community and ecosystem or whether it will result in market manipulation by the very government sources that Bitcoin was designed to stymie. My opinion is that the community has to get over it. If Bitcoin is going to go mainstream there will be risk involved in that process and one of the risks is losing control of it.

But what is it? Bitcoin is the blockchain. The blockchain remains in the control of the community as long as it can remain decentralized. Miners are to keep the hashing power centralized and to promote a decentralized blockchain. ASICs are centralizing computing power and just as with any other CPU it is subject to Moore's law. It is a realistic concern that ETF's could centralize the market itself but considering that Mt Gox was centralized for the longest time this isn't new.

ETF's the good and the bad

Let's start off with the bad scenarios which can occur. The nightmare scenario is that the fiat currency operators will somehow through an ETF release a product which cannot be redeemed. Meaning you give them your money, they give you pieces of paper, and you cannot exchange these pieces of paper for Bitcoin. The concern is that this could be a stealth play to turn Bitcoin into a fiat currency just as what happened with gold. It is very reasonable for the disruptive unorthodox investors to fear and distrust the traditional elite investors because of the attitudes among elite investors that Bitcoin investment isn't legitimate. The only way to change this attitude is to make it legitimate, but to make it legitimate may require risking everything Bitcoin stands for.

In the worst nightmare scenario of all, the US government takes complete control over Bitcoin itself by owning the ETF's that allow the vast majority of traditional elite investors to trade. Not every traditional investor is elite by the way, as anyone with a 401k is considered an institutional investor. The elitism I speak of of the corporate elitism which is slowly seeping it's way into Bitcoin like a virus. This elitism is actually an attitude backed by a series of cleverly designed memes, which promote the idea that early adopters in Bitcoin should not promote any other coin. It is also the attitude that I've got mine so it's time to close the door.

This attitude is common but it does not come from the grass roots, it comes from the top down. For instance ASICs are a good thing if it's used to decentralize the network and someday that might happen but in order to keep the network decentralized the profits and power must be decentralized. Are miners of all sizes and setups able to make a profit mining Bitcoins? If they cannot then this is a vulnerability in Bitcoin itself which will only be exacerbated by ASICs to produce a pyramid rivaled only by the ancient Egyptians.

The good of the EFT's is that they can provide increased liquidity. This increased or enhanced liquidity can reduce volatility. This reduced volatility is good news for individuals hoping to use Bitcoin as a currency but the problem is Bitcoin isn't a currency by it's current design. Currently Bitcoin is a virtual commodity posing as a currency and the reason it cannot function as a currency is because it cannot scale due to the Max Block Size. That which keeps Bitcoin decentralized is also that which keeps it from scaling until they find some off-chain solution.

The entire market cap of Bitcoin is around one billion dollars. This market cap would increase in a dramatic bubble if Bitcoin were on NASDAQ as XBT. It could literally go from a $1 billion to a $100 market in a matter of months. $1000 a Bitcoin or more would become an immediate reality, and that is being very conservative. It is very possible that we could see over $7000 a Bitcoin due to the Winkelvoss EFT. If there are several competing EFT's out there then the price will almost certainly reach these levels and unlike with gold it will not take very long because Bitcoin can also be used as a currency, and has advantages over gold.

Does a Bitcoin EBT card (food stamp card) make sense?

If Bitcoins become worth a lot due to EFT's then at what point does it make sense for local governments to actively invest in Bitcoin XBT and use that to fund their welfare programs? The federal government could very well prop up Bitcoin on purpose to feed the people. In fact this could happen all over the world once Bitcoin is put into EFT form and traditional/institutional investors get involved. A government could do this to manipulate the price but a government could also do this with the best of intentions, and it still could result in a huge price increase.

I don't predict this scenario because I don't think governments are smart enough to try it, but I do not see why governments could not invest in Bitcoin itself. State and local governments do have retirement programs, they do have investment programs, there are sovereign wealth funds, and nothing would stop such a fund from buying massive amounts of shares in XBT with the knowledge that not only would the price be guaranteed to go up, but they'd also regulate the market.

I think this would perhaps go against the original intention of Bitcoin but I do not think the majority of poor individuals in the world would care if their EBT card were backed by Bitcoin, the dollar, or whatever else. I don't think retiring government employees would care if their retirement holdings were of Bitcoin either just so long as they have more money to retire with. So for 401ks, retirement plans, and more I could see it take off. The unknown element would be non-government organizations and charity style non-profit organizations such as the Gate's foundation, which could easily decide to buy XBT in massive amounts. There is a lot that we just wont know until the EBT's are launched and we see the response of NASDAQ, it could literally turn Bitcoin mainstream overnight and launch the price of coins into the $10,000 range or it could be seen as a joke.


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