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Spot Bitcoin ETF Could Generate “Millions of Unsecured BTC,” Analyst Says

The potential approval of a Bitcoin (BTC) spot exchange-traded fund (ETF) in the United States will trigger fundamental problems with anonymous creator Satoshi Nakamoto’s original vision of Bitcoin, according to an analyst.

The concept of a spot Bitcoin ETF – an investment product that tracks the price of BTC by holding Bitcoin – conflicts with the idea of ​​self-custody, according to Josef Tetek, a Bitcoin analyst at the holding company cryptographic hardware Trezor.

Unlike a Bitcoin ETF, self-custodial crypto storage solutions allow users to own Bitcoin while taking full responsibility for holding the private key – or actual assets.

“In principle, spot Bitcoin ETFs take people away from their own custody and potentially introduce systemic risk, because ETFs will be ostensibly safer than exchanges,” Tetek said in an interview with Cointelegraph.

A possible consequence of the one-time approval of the Bitcoin ETF could be that large quantities of BTC would be stored in central locations where the government could seize them, the analyst said, referring to a scenario seen with the confiscation of gold in the United States in the 1930s. Tetek added:

“And while a spot Bitcoin ETF would make exposure to Bitcoin price movements more accessible to individuals and institutions, simply purchasing Bitcoin through conventional means would provide the same exposure. Do we really need ETFs for this?

Another significant issue with a spot Bitcoin ETF is that ETF holders will not have the option to withdraw the underlying asset. Instead, these assets are held in aggregate by the ETF itself, raising the possibility of uncontrolled issuance of “paper Bitcoin”, unbacked by actual Bitcoin, the supply of which is capped at 21 million of parts, Tetek noted. The analyst said:

“The result could be the creation of millions of unsecured Bitcoins, which would distort real markets and drive down the value of real Bitcoin – while giving greater freedom of action to the giants of centralized traditional finance. The very antithesis of Satoshi’s original vision.

Tetek’s remarks on self-custody versus spot Bitcoin ETFs signal a potential downside amid growing market optimism, with various firms and analysts expecting U.S. securities regulators to approve a Spot BTC ETF in January 2024.

Related: ARK’s Cathie Wood Calls Spot Bitcoin ETF’s Short-Term Effect a ‘Sell on the News’

However, not everyone is optimistic about spot BTC ETFs. Arthur Hayes, co-founder of crypto exchange BitMEX, believes that spot Bitcoin ETFs could “completely destroy” Bitcoin if they become too successful. If not Bitcoin, these ETFs will likely compete with centralized crypto exchanges like Coinbase because ETF fees are expected to be lower than exchanges, according to some Bloomberg analysts.

According to Mati Greenspan, founder of Quantum Economics, there is no direct conflict between self-custody and spot Bitcoin ETFs because retail users will stick to self-custody.

“Personally speaking, I would never buy a paper form of Bitcoin IOU, but that’s because I have the ability to self-custody,” Greenspan told Cointelegraph. “Most institutions don’t have this option,” he added.

“There are no advantages and many disadvantages for retail investors to hold Bitcoin ETFs. It’s much better to just hold Bitcoin,” Greenspan said.

Review: How to Protect Your Crypto in a Volatile Market – OGs and Bitcoin Experts Weigh In