Satoshi Might Be a Bitcoin ETF Skeptic

After months of rumor and false-starts, the Bitcoin ETF news many have been waiting for finally landed this week. In the eyes of many in the mainstream, the SEC’s blessing of a Bitcoin ETF legitimizes digital currency in a way no other has been able to achieve thus far.

With a Bitcoin ETF, investors of all stripes will have access to this once-in-a-generation creation. As a codified financial product, the positives are pretty obvious: more exposure and more investors should mean an increase in the price of Bitcoin (and price stability). This economic incentive offers an obvious reason for the near-universal praise the SEC’s blessing has received.

But what exactly are we signing up for here, and what would Satoshi think?

A Bitcoin ETF will function just like any other ETF, allowing investors to interact with the cryptocurrency market without directly owning Bitcoin — just as one interacts with any other market on any other stock exchange. This will clearly attract institutional investors, offering them a regulated and secure way to invest in Bitcoin, but what’s another way of saying this? We’re inviting the big banks to the table.

Isn’t that the opposite of what Bitcoin was born to do?

Satoshi’s Vision for Bitcoin

When the pseudonymous Satoshi Nakamoto introduced Bitcoin in the aftermath of the 2009 financial meltdown, their vision was rooted in decentralization, transparency, and autonomy. The core principles of Bitcoin aimed to create a financial system free from the control of central authorities such as governments and traditional financial institutions. A world was envisioned where transactions would be conducted directly between two parties, peer-to-peer, without the need for intermediaries like banks or payment processors.

Importantly, Satoshi envisioned a financial system that enabled access to all, not only those with a good credit score or high net worth.

That’s core to understanding the origins of Bitcoin: it was Satoshi’s take that a system built around centralized financial institutions did not prevent any of the problems it was built to avoid.

Meet Bitcoin ETFs

As Bitcoin has evolved in the decade-and-a-half of its existence, there have been many ups and downs in terms of price, the legal environment, and the broader development of the cryptocurrency ecosystem.

As was said in a Hacker Noon post by @ras in 2021, bitcoin’s price “volatility is about 7x higher than the S&P 500’s.” Many have said - for years - that what will bring maturity and stability to the Bitcoin ecosystem is the introduction of an ETF.

Bitcoin ETFs function similarly to traditional funds on a stock exchange. An asset management company purchases the underlying asset and stores it with a custodian. Then it issues shares to its fund that investors can buy and sell. The financial institution is responsible for managing the underlying asset (in this case, bitcoin) for safekeeping on behalf of the fund’s investors.

It’s clear, then, that the Bitcoin ETF will increase market volume, attract larger and more varied investors, and create a more stable buying and selling experience overall. The probable impact of a Bitcoin ETF isn’t limited to simple concepts like accessibility and liquidity, though. It’ll also have implications in the very way that cryptocurrencies are thought of. A sanctioned product like a Bitcoin ETF will signal stability and trust in the cryptocurrency market, very likely attracting mainstream investors who have been keeping their distance from the volatile experiment thus far. Say nothing of the people who haven’t been able to figure out the purchase of cryptocurrency.

Satoshi, Where Are You On This?

On the one hand, the availability of a bitcoin ETF addresses one of Satoshi’s core principles in improving access to a financial instrument that has become significant, but only as an investment instrument.

As ChangeNOW’s Kate Lifshits said after the announcement, “Institutions like BlackRock and Fidelity stepping into our arena underscores a pivotal moment which will undoubtedly catalyze demand for comprehensive, fit-for-purpose regulation around the world. This may be a good thing for the growth and stability of Bitcoin though it remains to be seen if this helps the broader industry realize the original vision of Satoshi Nakamoto."

That is because this “improved access” is not the kind of access Satoshi was thinking about. Satoshi’s original vision laid out a path for direct peer-to-peer transactions, eliminating the need for intermediaries like the very funds that are launching these Bitcoin ETFs. By design, a Bitcoin ETF requires an intermediary layer, as retail investors interact with a Bitcoin market through fund managers and exchanges rather than engaging in direct transactions on the blockchain. In other words, central authority.

Perhaps the most obvious violation is ETFs are governed by regulatory authorities, a violation to the core principles of bitcoin. An approved Bitcoin ETF will be subjected to all the oversight Satoshi worked to be free of.

By and large, the approval of a Bitcoin ETF is a moment of validation in the crypto world, but perhaps we need to hold our champagne celebrations to just one glass and ask ourselves what exactly we have won with this supposed victory.

Without resorting to fear-mongering, it feels important to pause and ask ourselves whether the approval of a Bitcoin ETF aligns with Satoshi Nakamoto's original vision for a decentralized and peer-to-peer financial system.

The convenience an ETF provides in terms of traditional investing also brings with it centralized authority, regulatory oversight, and plenty of opportunities for market manipulation.