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0 sats \ 4 replies \ @crrdlx OP 29 Sep 2023 \ parent \ on: ETF pressure bitcoin
As I understand, mere mortal pleb that I am!, the way it would work would be this...
- ETF fund buys BTC
- fund sells shares of the ETF to investor
- fund holds BTC as custodian for investor
- investor redeems when desired (sells shares of ETF)
So, yes, you're right, investor is not holding BTC. And yes that goes against the "not your keys..." ethos. However, the fund DID buy the BTC and is holding it via their keys. And yes, also goes against the ethos of "don't trust, verify" because investor must trust the ETF and the financial system as a whole. The ETF is not for true bitcoiners. It's for big money to easily get in or out, for Junior with a Robinhood account, or grandpa with an etrade account.
But, no, no new BTC is minted on paper with an ETF. (Derivatives are a whole other matter that I neither understand nor want anything to with. That may be what youre referring to.) An ETF is just the current limited bitcoin supply being subjected to the buy pressure of that ETF.
But, no, no new BTC is minted on paper with an ETF
It's possible though with manipulation.
But I believe spot ETFs will just be the start for many companies to learn about bitcoin.
And then, at some point, they want to make sure they really own bitcoins, not just bitcoin IOUs. However, ETFs aren't even IOUs, they are worse.
One big advantage of bitcoin compared to gold is that it's way easier to own and protect. So imo it won't be that easy to manipulate the price since the road to ownership is basically paved.
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It's possible though with manipulation
How is it possible? They'll be audited regularly to make sure they own as much bitcoin as they have IOU liabilities. Are you saying the auditing itself will be rigged because of corrupt auditors?
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They'll be audited regularly to make sure they own as much bitcoin as they have IOU liabilities.
That's a good point and also a reason to believe it will be very hard to impossible to manipulate.
Are you saying the auditing itself will be rigged because of corrupt auditors?
For example. I just don't believe that audits or regulations mean that no manipulation or corruption can happen. Afaik, FTX was one of the most regulated exchanges - at least they bragged about it - but see how that turned out.
TradFi with BlackRock is a different beast but if we argue from first principles, it's still possible.
Don't trust, verify. And I am not sure they will provide proof of reserves to the masses.
That reminds me that I should look more into how proof of reserves work. Thanks! Blog post idea.
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I like to think the level of auditing / regulation will be much higher with the ETF. That's why it's so hard to get approved, it requires much more scrutiny. Or maybe that's just what the SEC is using as an excuse to drag their feet.
One of the problems with exchanges using proof of reserves is it doesn't prove their liabilities. In an ETF that side of the equation should be taken care of.
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