Crypto has gone comatose. Outside of all the hacks and scams, the price action is the big snooze.
Here is a chart of bitcoin:
Bitcoin’s volatility used to be considered by many, especially old school institutions, as the bane of crypto, but that seems to be gone. Volatility is now in line with mainstream indices, but perhaps not for long.
If you squint at this chart you can see the short term highs and lows are compressed when compared to bitcoin’s volatile past. This can be seen as the market saying, this is the right price for crypto and the future holds no sufficient ‘good news/bad news’ call to make the price swing about.
Historically you would consider the current action as just a steppingstone toward more higher highs, but a law of markets is that they very often move the opposite way to general expectations.
There is no rule that is much better than a 50/50 in divining the markets, so even while I think we could be in for a fall, I’m not short and if bitcoin takes off suggesting a big move up, I’m not going to be keen to jump on board either. My feeling is do not play this level unless you are totally sure in your mind of the near future moves ahead. This is a good rule for all trading but not one that is easy to keep to, if you like speculating. If bitcoin fell out of bed I would be interested at $10,000 and I would aggressively dive in, but at $30,000 life is good for bitcoin and the market action is telling us all that there is ‘nothing to see here’ and nothing dramatic on its way. You can disagree with the market for sure, but that is what it is telling us with this dearth of volatility.
Now I have this nagging intuition and it runs against the common consensus.
A bitcoin ETF is going to be a negative for bitcoin’s price.
The idea is that an ETF will open floodgates for new investors and soak up bitcoin and ram up the price. I say maybe!
Alternately here is the thought. Financial institutions extract monies from markets, but they do not reinject that money. The shareholders of those institutions buy yachts. Extracting value from an asset drains its value unless there is a counterbalancing positive effect those institutions add. Without that add of value, the asset dies on the vine, as you can see in the U.K. stock market where public companies in general wither away, get taken private at a loss to pension holders and in general find it nearly impossible to thrive because the system is draining them of value and making them financially anemic. You can see this in a less toxic way when a company pays dividends. Value is extracted as a dividend and the stock price falls accordingly. Other ways of extracting cash from a company’s equity trading will do exactly that too and the same goes for crypto. Stocks are not a magic purse you can keep taking money from so if an exchange-traded fund makes money for its providers that is coming out of bitcoin’s value, so something else must compensate, for example buying physical to back the ETF, or adding liquidity to a broader audience. If however, it’s just a drain because say the ETF is backed by a future, which too, is draining bitcoinBTC value then the effect will be negative.
What will the ETF providers provide in terms of value to compensate from all the cash they aim to make from running all these ETFs? The same goes for the ETF market makers and hedge fundies. Providing a centralized location for more mini-Bankman-Frieds to get up to monkey business seems like it could be a major negative for BTC, not a positive at all.
Gold is a good example. Everyone loves gold but very little of the gold market is actually anywhere near connected to gold. When gold starts to rise, it’s almost impossible to buy the physicals at anywhere near the quoted paper gold price, so is all this “fiat” gold a benefit or a bane? Many say it’s a bane.
So will EFTs be bane not a boon for bitcoin?
A simple way to ask is to wonder, is Satoshi Nakamoto’s dream of indestructible, distributed, transparent money compatible with an opaque, centralized, fragile ETF proxy?
In summary, an ETF is a fiat version of bitcoin, so it leaves me wondering if it’s such a great idea. There is one thing to be sure of, that if a financial institution is incredibly keen to provide you with a product, you should probably shy away from it. Here comes another opportunity to make a small fortune from a large one.
