On 22 December 2023, Arthur Hayes, the co-founder of BitMEX, shared his insights in a blog post about the potential introduction of a spot Bitcoin ETF in the United States and its implications for Bitcoin. Hayes’ analysis gets into the fundamental differences between Bitcoin and traditional monetary assets, highlighting the unique existential risks Bitcoin faces in the context of traditional finance (TradFi) asset management.

Hayes began by noting the increased palatability of a spot Bitcoin ETF to the U.S. political establishment once traditional finance entities on the East Coast submitted their applications. He humorously suggested that the Winklevoss twins, early proponents of a Bitcoin ETF, might have had better luck with their application had they conformed more to the traditional Wall Street image.

The core of Hayes’ argument lies in the fundamental nature of Bitcoin compared to other monetary assets. Hayes believes that unlike gold or fiat currency, which exist physically and are governed by natural laws, Bitcoin’s existence is contingent on its movement within the network. He pointed out that Bitcoin is the first monetary asset in human history that only exists if it is actively used, and went on to say that this is particularly relevant post-2140 when Bitcoin block rewards hit zero, and miners will rely solely on transaction fees for income. According to hayes, if Bitcoin ceases to move, miners will not be able to sustain the energy costs of network security, leading to the network’s collapse and Bitcoin’s disappearance.

Hayes expressed concern about the potential impact of large TradFi asset managers like Blackrock entering the Bitcoin space. Per Hayes’ blogpost, these firms typically accumulate assets, store them, and issue tradable securities without actively using the underlying assets. He thinks that if these firms, along with major Western and Chinese asset managers, were to hold all Bitcoin in circulation, the lack of movement could lead to the network’s demise. and that this scenario could unfold as people opt for Bitcoin ETF derivatives instead of buying and holding Bitcoin in self-custodial wallets, mistaking a financial asset for a store of value.

Hayes stated:

Fundamentally, if ETFs managed by TradFi asset managers are too successful, they will completely destroy Bitcoin. This prediction is based on an important subtle yet profound difference between Bitcoin and every other monetary instrument humanity has ever used.

Interestingly, Hayes sees a poetic aspect to this potential outcome. Hayes mentions that if Bitcoin becomes another state-controlled financial asset and dies due to lack of use, it could create space for another crypto monetary network to emerge. According to Hayes, this new network might be a reboot of Bitcoin or an improved adaptation, offering people a non-state-controlled monetary asset and financial system.

Hayes concluded by emphasizing the importance of choice in the context of ongoing fiat debasement. He differentiated between trading financial assets to earn more fiat and preserving wealth in energy terms using a financial system outside of state control. For the latter, he advised buying Bitcoin and using self-custodial wallets rather than relying on centralized exchanges and ETFs.

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