Bitcoin ETF

Bitcoin

Noah

Famous economic analyst Noah Smith recently wrote an intriguing article about bitcoin. He discusses the recent approval of ETFs by the SEC and the hidden interests of some bitcoiners. His thesis is striking: there exists an increasingly powerful Bitcoin lobby that operates in the shadows to create monetary chaos in the world.
<h2 id="h-a-lobby-behind-bitcoin">A lobby behind Bitcoin?</h2>
Bitcoin was designed as a payment method, but almost nobody really uses it to pay for anything. Some see it as a hedge against <a href="https://www.cointribune.com/en/the-us-inflation-figures-are-fabricated/" target="_blank" rel="noopener noreferrer nofollow">inflation</a>, a kind of digital gold, insurance against the collapse of fiat currencies.
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Others see it as a kind of tech stock, the foundation of a future decentralized finance, and other cryptographic applications. Yet others think it’s simply a “fad” of no interest or a Ponzi scheme.
But observing the world of cryptography over the past two years, I realized that BTC now has an additional function: that of a special interest group.
<h2 id="h-800-billion">$800 billion</h2>
No matter the reasons why people appreciate bitcoin, the fact is it’s definitely worth a lot. The value of the first cryptocurrency has climbed over the past year and today exceeds $800 billion.
$0.84 trillion is not a huge wealth compared to gold (which has a total market capitalization of ~$13.8 trillion currently) or the US stock market ($46 trillion).
But it’s enough to create an entire class of people around the world for whom bitcoin is a major source of wealth, if not their main source of wealth. And people who own wealth want to protect and grow it.
Thus, the increase in the value of bitcoin has created a natural interest group for policies that will further increase the price of bitcoin in the future. If you think about it, that’s not particularly unusual.
<h2 id="h-the-bitcoin-lobby-behind-the-etf-approval">The Bitcoin lobby behind the ETF approval?</h2>
Real estate owners always try to increase its value through local politics. Shareholders appreciate the government adopting business-friendly policies. Wealth always creates its own interest groups, and it will always be so, whether you call it “capitalism” or something else.
My thesis is that the recent institutionalization of bitcoin, particularly the SEC’s approval of ETFs, fundamentally alters the political economy of cryptocurrencies.
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<h2 id="h-where-does-bitcoin-s-value-come-from">Where does Bitcoin’s value come from?</h2>
Let’s think a little more seriously about the origin of bitcoin’s $840 billion value.
It’s clear that it comes from demand: given that the supply of bitcoins is limited, the more people who want bitcoins, the more they have to drive up the price.
The initial idea was that the demand for BTC would come from people using it as a payment system.
With this mindset, those who acquired and held bitcoins from the start would be the big winners in terms of dollar wealth.
This idea has always had a strange logic. If bitcoin holders think dollars will lose value, why would they celebrate being able to get more dollars in exchange for their bitcoins?
At best, you can hope to make a kind of double transaction, exchanging bitcoins for dollars, and then quickly trading dollars for a real asset, like real estate, before the great fiat currency crash happens.
<h2 id="h-bitcoin-will-never-be-a-payment-method">Bitcoin will never be a payment method</h2>
Anyway, this is a moot point since the adoption of bitcoin as a payment method has always been incredibly unlikely.
Bitcoin is designed to have a long-term deflationary value. This means that people will tend to save it instead of spending it. People like using money that depreciates slowly and predictably over time (like the US dollar), because this type of money is something they feel comfortable giving in exchange for a pizza.
<a href="https://www.cointribune.com/en/bitcoin-el-salvadors-strategic-move-ahead-of-blackrock/" target="_blank" rel="noopener noreferrer nofollow">El Salvador</a> tried adopting bitcoin as a legal currency, and nobody wanted to use it. At this point, even most steadfast supporters of bitcoin realize that the only way for bitcoin to be used as a payment system is for fiat currencies to simply cease to exist.
If the dollar, euro, yen, yuan, rupee, and all other government-sponsored currencies collapse, then maybe bitcoin will be widely adopted as a payment system simply because there will be no better alternative.
Similar to when gold coins were used as a payment method during periods of government collapse in the distant past.
<h2 id="h-bitcoin-an-investment-like-stocks">Bitcoin: an investment, like stocks</h2>
Unless that happens, bitcoin will only increase in value by a very different means: a widespread demand for bitcoins as an investment asset.
In other words, the more people in the future decide that bitcoin is a good way to save their money, the more people who own bitcoins today will become wealthy.
Here’s how the great Matt Levine summarizes the situation:
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 In large developed economies, despite years of crypto evangelism, people still far prefer fiat currency and traditional banks.
 And yet, the price of bitcoin has gone from zero in 2009 to about $46,000 today, not because of widespread adoption as a payment mechanism, but because people – lots of people, crypto-evangelists, but also regular investors and fairly traditional financial strategists at big institutional investment companies – see it as a “store of value”.
 This means they think its price will go up, or at least not go down, robustly and over the long term. They buy bitcoin at $46,000, not because they plan to use it as a digital currency, but because they think other people will buy it at $47,000, or $470,000, or some other price. <cite>Matt Levine</cite>
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<h2 id="h-etf-a-turning-point-for-bitcoin">ETF: a turning point for bitcoin</h2>
That’s why last week’s U.S. authorization of a Bitcoin ETF is so important. By making it easier to buy and hold bitcoins, it increases the number of people who hold bitcoins.
Currently, about 25% of Americans own bitcoins, and 60% own stocks. If owning bitcoins becomes as common as owning stocks, the demand for bitcoins could soon skyrocket.
Of course, the approval of the ETF did not cause the price of bitcoin to rise or at least, not for long.
That’s probably because the markets are forward-looking; people have been anticipating the SEC’s decision since the end of last year, and maybe even before.
The anticipation of the Bitcoin ETF is probably the main reason its value has more than doubled over the past few months. By the time approval actually occurred, it had been priced in.
<h2 id="h-investment-funds-will-drive-up-the-price">Investment funds will drive up the price</h2>
Why should the existence of a Bitcoin ETF encourage more people to buy bitcoins?
Levine suggests that in the future, Bitcoin ETFs might pay interest by lending out the bitcoins they hold, much like a money market fund. Currently, that’s not the case.
It’s more likely that institutions (pension funds, wealth managers, university endowments, etc.) will simply find it safer to invest in a bitcoin ETF than in bitcoin itself.
They are used to investing in ETFs, which they understand. By allowing bitcoin to be the basis of an ETF, like stocks, gold, or real estate, the SEC is endorsing the idea of making bitcoin an asset class.
An asset class is something you always want to own a part of, especially if you’re an institution like a pension fund or wealth management firm.
By authorizing the creation of a BTC-based ETF, the SEC helps BTC move from “something you may or may not want to own” to “something that anyone with money should own at least a little of”.
<h2 id="h-all-americans-will-be-exposed-to-btc">All Americans will be exposed to BTC</h2>
And in the asset management world, “a little bit” is an absolutely huge amount. <a href="https://www.blackrock.com/fr" target="_blank" rel="noopener noreferrer nofollow">BlackRock</a>, the largest asset manager, manages over $9 trillion in assets.
If just 1% of those assets are reallocated to Bitcoin, that would mean an increase in demand equal to more than 10% of Bitcoin’s current market cap. This wouldn’t mean a 10% gain for bitcoin, but likely much more.
Of course, BlackRock is just one asset manager among many. Not all American asset managers have signed on yet. Vanguard, the second largest, still refuses its clients access to Bitcoin ETFs.
But the SEC approval is a step toward near-universal ownership of Bitcoin. Already, consciously or not, a significant percentage of Americans will indirectly own bitcoins, through their pension funds.
<h2 id="h-bitcoiners-have-accomplished-a-remarkable-feat">Bitcoiners have accomplished a remarkable feat</h2>
Levine, therefore, underestimates the impressiveness of what bitcoiners have done. They haven’t just created a financial asset out of nothing, without dividends, interest, or claims on any real economic activity.
They have created an entire asset class out of nothing – something into which the retirement accounts of many American workers will place a part of a lifetime’s savings, even though it generates no dividends, interest, or claims on any real economic activity.
The next question, then, is this: what do the class of bitcoin owners expect from the government and politics?
<h2 id="what-do-bitcoin-owners-want">What do Bitcoin owners want?</h2>
Don’t forget that one of the reasons people might exchange their dollars for bitcoins is the collapse of all fiat currencies worldwide.
This doomsday scenario played a crucial role in the early adoption of bitcoin by people who didn’t trust banks or the government, or who had decided that the troubles from 2014 to 2021 marked the beginning of the end of the world order.
There are still many early bitcoin adopters who believe that this doomsday scenario is the best argument for bitcoin. For example, Balaji Srinivasan believes that nation-states will collapse and be replaced by decentralized network-states operating with BTC.
He predicts that the collapse will happen and advises the world to do what it did to weather the storm (i.e., buy more BTC).
But one can assume that there are bitcoin owners who are much less scrupulous and civic-minded than Balaji, actively encouraging the collapse of nation-states to increase the value of their own bitcoins.
<h2 id="are-bitcoiners-working-for-the-collapse-of-civilization">Are bitcoiners working for the collapse of civilization?</h2>
And I can imagine that these individuals engage in very nasty activities – for example, trying to encourage the Russian conquest of Ukraine and/or NATO countries, or the Chinese conquest of Taiwan.
It could involve trying to spread online far-right or far-left ideas to discourage America from supporting Ukraine or Taiwan.
Or trying to elect Donald Trump, based on the theory that he would create more global chaos, withdraw from NATO, and/or completely collapse American institutions.
This idea is extremely disturbing.
Indeed, when I see bitcoin supporters on Twitter X, many of them advance right-wing or (less frequently) left-wing political ideas.
This is largely a simple correlation: people with extreme political convictions are also the ones who tend to buy BTC.
But it could also be a causal link. It’s very difficult to advocate for global stability when it could limit the size of your windfall.
<h2 id="bitcoin-a-hedge-against-inflation">Bitcoin, a hedge against inflation?</h2>
Recent performance of bitcoin seems to indicate otherwise. Bitcoin crashed in late 2021 and early 2022 when U.S. inflation was at its peak and started rising again when inflation decreased.
There is an obvious reason for this: when inflation is high, the Fed and other central banks raise interest rates to fight it. Higher interest rates reduce demand for risky assets like bitcoin, lowering the price of bitcoin.
The dream of early bitcoiners, of a world where banks and central banks would have no control over citizens’ wealth or payment systems, seems more distant than ever.
By approving Bitcoin ETFs, the U.S. government is tightening the cryptocurrency ecosystem around it: the wealth of bitcoin holders is increasing, but this wealth now depends on the health of the United States and its financial system.
Thus, even if some early bitcoiners will continue to evoke the doomsday scenario that inspired them in the early years, this scenario will become less and less appealing to the vast majority of bitcoin holders.
<h2 id="the-end-of-anarcho-capitalist-cypherpunks">The end of anarcho-capitalist cypherpunks?</h2>
On the contrary, the collapse of banks and fiat currencies will be perceived as a threat. Bitcoin owners now have an interest in the stability of the United States and the world, and many of them will vote or lobby in that direction.
So, I see bitcoin owners lobbying against measures that would make electricity produced from fossil fuels more expensive, such as carbon taxes.
<h2 id="but-this-is-a-minor-concern">But this is a minor concern</h2>
The real politico-economic danger of bitcoin was that it would trigger an ever-growing wave of chaos agents in the world, whose ranks and wealth would continue to grow as their disruptive efforts succeeded, allowing them to spread even more chaos in a self-reinforcing cycle.
Thanks to the institutionalization of bitcoin, this danger now seems increasingly distant. If you feel like complaining about the approval of Bitcoin ETFs or other measures that direct institutional money into bitcoiners’ wallets, you should stop to consider the politico-economic benefits. I suspect the SEC took these benefits into account when making its decision.

The powerful lobby funding bitcoin (BTC)

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