No SEC, No Corporate Takover

Today the SEC in the USA declined to make an exception to an obscure rule for the Winklevoss twins bitcoin ETF application. It got declined. the bitcoin market, which in a sense had hoped for its acceptance, has taken a hit. Down to $975 at one point but now rising at over $1100 USD. There are at least two other ETF applications in play in the USA at the moment, but this one, in particular, has grabbed a sensitive reaction. Some would say bitcoins fabled volatility is back.

The ETF concept has a strange relationship with bitcoin. It is debatable wether the ETF actually makes investing in bitcoin more accessible to the general public.For young people comfortable with computers it is easier to buy the real thing than the ETF. So in a way listing on the New York stock exchange with ETF has been out-moded by bitcoins new international trading ecosystem. It does however make the investment more accessible to established investors who don't want to change the way they do things. Ironically the same establishment that got bailed out in 2009 and for the failing of which bitcoin is the intended cure.

In integrating with old money using the old financial establishment's tools there is a moral hazard for bitcoin. As the currency is in its infancy there is a risk that it could be overwhelmed by new larger financial stakeholder. At this point, the initial vision of the cryptocurrency may be distorted. We are seeing lots of volatility induced by government and large corporate organisations, evident in the release today. Do we actually want more of this?

A large popular ETF will add a new mysterious metric to the bitcoin structure and things like the blockchain debate. I'm not sure I like the SEC conferences being involved in our future. Where we now can talk freely about the pros and cons of on and off chain transactions, Bitcoin core and Bitcoin Unlimted, settling the score in the in the public forums of the internet. Backed up by the real-time node and hash rate statistics it's like a new hyper-democracy. We can see already that with the ETF comes closed door meetings, announcements by insiders and section b part 11 exert 6, paperwork burial.

Where we now come to the bitcoin prices in a fairly decentralised way, ETF's will likely lead to larger the stakes with more influence. This is more important when forking the code on the card. The corporate agenda and profit maximisation will edge its way into consideration. For example, if a bitcoin ETF holds a quarter of the total market cap of bitcoin ($5 billion worth) then bitcoin forks in two, say bitcoin and bitcoin unlimited, it will double its money. It will then also have the power to cash out of one side if it chooses at a time to its advantage in order to crash the price of that fork and gain an advantage over competing ETFs. This profitable scheme leads to fork pumping and dumping on a major scale due to the inherent vulnerability of new bitcoin forks.

Though ETF funds can't directly effect miners or node counts they do increase the centralisation of price discovery between forks. This could prevent a hard fork from ever being effective or ensure only forks that benefit the ETF find traction. This allows old smoke screen corporate politics into bitcoins publically programmed political structure.

Money talks, at least it used to. The bitcoin price would rise but it's still not clear if a corporate takeover is a good thing. I prefer echo chambers of the blogosphere and the Git hub hive mind.