Billions of dollars flowed into U.S. spot Bitcoin (BTC) exchange-traded funds (ETFs) in the first week of trading. But despite their immense popularity, some crypto executives claim these instruments violate the ideals crypto was built on.
The U.S. Securities and Exchange Commission (SEC) approved multiple spot Bitcoin ETFs for the first time on Jan. 10, and they began trading on Jan. 11. Trading activity showed that there was enormous pent-up demand for these products, as they experienced $10 billion in trading volume over the first seven days. In addition, the Bitcoin ETF market saw over $782 million of net inflows of capital in just the first two days of trading.
But despite the proven popularity of these financial instruments, some executives at crypto companies are urging caution, claiming that ETFs may lead to greater centralization in the crypto industry and will not be needed in the future anyway.
Cointelegraph spoke to Andy Bromberg, CEO of wallet developer Eco, who claimed that ETFs could give traditional financial institutions excessive influence over the market. “You are in fact, when you buy into one of these Bitcoin ETFs, giving Wall Street money to buy Bitcoin with, [and] they own the Bitcoin and you own a piece of paper that says you have a share in this,” Bromberg stated. He claimed this was “stepping away from the ideals” that Bitcoin was founded upon:
“There is a world where, if all people entering the industry care about and think about is price and not what this technology actually does, they’ll buy into these Bitcoin ETFs. And one day, these Wall Street institutions will own 70% of the Bitcoin in circulation […] I’m not so sure that is the thing that we were trying to build.”
Bromberg called Bitcoin an “incredible thing,” but claimed that the ETFs are “Bitcoin with all of the incredible things taken away from it and just leaving the price.”
Despite this criticism, Bromberg claimed that he was happy that the ETFs were approved. Echoing SEC commissioner Hester Pierce, he stated that the decision gives Americans “the right to express their opinions on Bitcoin within financial markets.” However, he argued that the crypto community is facing a crucial test after the ETF approvals.
If crypto users can’t help new investors to “take one more step” into self-custodying their funds, “we’re going to end up with a Wall Street-owned financialized asset, same as everything else, and it will have all been for nought.”
When asked about a solution to the problem, Bromberg claimed that developers need to “build products that are as easy as investing in the Bitcoin ETF but that allow people to have custody of their own assets and fulfill the promise of crypto.”
Lucas Henning, chief technology officer for the Suku wallet development team, also criticized the Bitcoin ETFs. Henning claimed that ETFs will inevitably fail to capture the attention of the public for long, since most cryptocurrencies and protocols other than Bitcoin simply won’t get SEC approval to be put into an ETF. Henning stated:
“As soon as one thing is done, like the Bitcoin ETF is done right now, people tend to ask the question, ‘What is next?” and now what is next is potentially the Ethereum ETF. If that gets completed, people are naturally going to ask the question, ‘Are we going to get access to Ethereum DeFi protocols?’ Are we going to get access to those sweet dividends and interest rates and everything that is possible? And the answer is probably going to be ‘No.’”
Henning emphasized that the SEC only approved the Bitcoin ETFs after a lengthy legal battle, and even then, the regulator was quick to assure investors that other cryptocurrencies wouldn’t necessarily get the same treatment. Per Henning, this implies that most of the yield in the crypto space will not be available through traditional brokerage accounts.
Henning also argued that self-custodying crypto assets will soon become easier than ever before, especially within the Ethereum ecosystem, and this will mitigate the need for more ETFs.
He referenced Ethereum Improvement Proposal (EIP) 7212, which will allow on-chain signatures using secp256r1 elliptic curve (also known as “R1”) cryptography. According to Henning, most facial recognition software uses R1 cryptography, whereas Ethereum and most other blockchains use “K1” instead. For this reason, there is no way currently to sign Ethereum transactions using a face scan or other biometric data.
However, once EIP 7212 is implemented on Ethereum layer-2s, users will be able to sign transactions directly with their mobile devices, using a face scan, without the need to store seed words or to use a trusted intermediary to countersign transactions.
As a result, self-custody wallets will become as easy to use as brokerage accounts. “We’re going to see wallets and we’re going to see crypto apps that are built for [non crypto native] users, where you’re not even going to realize that you’re actually using crypto,” Henning claimed. In his view, this “wallet paradigm shift” will lead to a reduction in the appeal of crypto ETFs, since users will no longer need the ETFs to custody their crypto for them.
Other experts in the industry have also given their opinion on ETFs, with some claiming these funds represent a “revolutionary change” while others agree that they are more of a “dud.”