Vladimir Okhotnikov on Bitcoin ETF: Visibility and Reality

Vladimir Okhotnikov is an investor, expert in blockchain and cryptocurrencies, a publicist defending the interests of the crypto community.

Vladimir Okhotnikov on the fight for bitcoin ETF

Over the last six months, Bitcoin-ETF has been one of the most discussed topics in the crypto community. There were regular press releases saying that the ETF was about to be approved. Such information interventions led to price spikes on the stock exchange. At this interesting time, rumors were the main driver of growth.

During discussions with regulators in the public opinion, a clear understanding of the division into heroes and villains has been formed. 

The main crypto-villain is, of course, Gary Gensler, head of the U.S.’s Securities and Exchange Commission, who is a man who openly claims that Bitcoin is being used for money laundering, drug dealing, and other ugly things. The rest of the cryptocurrencies did not receive such a negative characterization from him, but he declared them securities for work with which it is necessary to get permission from the SEC. He has repeatedly corroborated his allegations in legal proceedings with various crypto companies. 

The protagonists are those who have applied to the SEC for Bitcoin-ETF. These are large investment companies and funds led by BlackRock, the largest investment fund in the world.

«It was already clear last summer that Bitcoin-ETF would be approved. There were no formal grounds for refusal - you could procrastinate, but sooner or later you have to approve. This was proved by Grayscale, which obtained a court decision obliging the SEC to grant approval. This was the principled position of the SEC, and it defended it for as long as it could…»

Vladimir Okhotnikov

Accordingly, heroes submit applications, and the SEC absolutely refuses to accept them, although there are no objective reasons for the refusal... This is an image that is shown to an outsider. Simple and unambiguous picture. However, as is often the case, the reality is much more complex.

Meet: Exchange Traded Fund

First of all, let’s understand the nature of the ETF.

ETFs (exchange traded funds) as we know them appeared in the 1990s. Funds collect securities or other assets pooled on any basis, for example, they may be shares of oil companies. The investor is not engaged in independent formation of the portfolio of shares, but buys the fund’s share and thus invests in all securities at once. This is especially convenient for those who are interested in a relatively small investment and at the same time want to diversify the portfolio.

In the 2000s a special "golden" ETF, ideologically similar to Bitcoin-ETF, entered the market. Gold is a clear and safe asset, but keeping it is very uncomfortable and sometimes risky... The process of selling ingots also does not give much pleasure. Stock investors in general, don’t need physical metal. It is enough to have a reliable and liquid equivalent of its value. This is the equivalent of the fund’s shares, which are guaranteed by gold metal. Investors now have a convenient and liquid asset.

"Interestingly, after the launch, Bitcoin-ETF behaved in the same way as the gold ETF. At first, it drifted a little, then it stayed at about the same level, and then it started growing a lot. The comparison of Bitcoin with digital gold proves the validity of even this kind of coincidence...»

Vladimir Okhotnikov

Bitcoin-ETF works in much the same way. The Fund deposits bitcoins, and releases its shares. The shares are purchased by investors who have actually invested in Bitcoin, and formally in a new security.

It would seem simple. However, the SEC disagreed, stating that it considered the ETF a risky undertaking despite the fact that the ETF was recently approved by the Commission on Bitcoin Futures.

Contradictions in the perception of cryptocurrencies

If you read the opinions of the crypto community about Gary Gensler, you get the impression that the head of the SEC is a person who understands nothing in cryptocurrencies and opposes the obvious. That is absolutely not true! Mr. Gensler is very professional in his position. This is the position of the financier who is the specialist in fiat finance.

Indeed, if you simply apply the fiat rules and approaches to cryptocurrencies, you get a rather strange picture. Try using the logic of the "traditional" economy of finance to explain the existence of Bitcoin. This will not be so easy.

«It would be wrong to consider Bitcoin as just an investment asset. It would be a devaluation of its capabilities. The principal property of Bitcoin is the decentralization of management. At the same time, the current financial system is highly centralized, and the transition to decentralization for financiers seems a terrible heresy. The problem is that the fiat centralized system has caused all the current crises. Is it possible to fix it? We can modernize, but the fundamental problems are not going anywhere. For financiers, the very idea of decentralization is repulsive, hence the natural negative to cryptocurrencies. It’s not a personal attitude, it’s a worldview aversion...»

Vladimir Okhotnikov

All is well explained if one accepts that the fiat does not perform its functions and it needs an alternative (or supplement) in the form of an independent decentralized currency. Actually, this was the basic logic of Satoshi Nakamoto. For the financier to accept such a paradigm is to radically change his views. Hence the constant attempts to adapt the concept of cryptocurrency to known patterns. Among these patterns are the securities and, personally for Bitcoin, fraud.

Practice shows that many bosses of financial giants, who initially shared Gensler’s position, are gradually changing their views. Many, but not all. The legendary Warren Buffett is one of the toughest critics of cryptocurrencies. Does anyone question his understanding of economics and his intuition? 

That is, contradictions arise at the level of the original postulates, which makes compromise and understanding extremely difficult.

ETF and State

It is believed that the Bitcoin ETF is an exclusively investment instrument designed to attract a fairly conservative audience of traditional exchanges to investments in cryptocurrencies.

Indeed, this is one of the ETF missions and certainly the main motivation of the companies applying to the SEC. Users of "traditional" exchanges are offered an asset in their usual form, with a reputation confirmed by the issuer of the ETF. Such issuers are the top investment funds like BlackRock.

Forecasts came true, and the accelerated demand for the ETF triggered the Bitcoin stock rally. So that all participants in the process can be satisfied,

However, the speculative component is not the only one in the ETF approval process. There is always another actor who is not at the table but who has a deciding vote in the decision-making.

It is the state.

«The state is a very specific concept. It is very heterogeneous. I am not even talking about official structures, but about groups of influence - elites. A centralized State always acts on behalf of groups …»

Vladimir Okhotnikov

The term "State" in our context is too broad and requires clarification. "State" refers to elitist groups that influence decision-making and have financial and investment interests.

Bitcoin and the entire cryptocurrency market are a relatively small but potentially dangerous asset for them. The danger is a lack of control. So far, the global financial system has been completely transparent and manageable. And all of a sudden, there’s a technology that allows financial flows to go unnoticed. What to do with it? There are two options: disallow or lead. Obviously, the second option was chosen.

ETF has proven to be an effective tool for "legalizing" Bitcoin reserves and transferring them to traditional controlled markets.

ETF issuers buy and deposit Bitcoins, trading them for clear and transparent exchange papers. Bitcoins are actually withdrawn from circulation and replaced with securities that are equal in price but operate in the traditional "fiat" space.

Taking into account that the capital of ETF issuers allows you to buy the entire volume of bitcoins, you should expect their flow from crypto exchanges to “traditional” exchanges.

Conclusion

Launching a Bitcoin ETF can fundamentally change the entire crypto market. Most likely, in the foreseeable future it will be different - not better and not worse, namely, different. What exactly - soon we will see.

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