20
votes
ETF approval for bitcoin – the naked emperor’s new clothes [European Central Bank criticises US securities regulator for approving a Bitcoin ETF]
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- Title
- ETF approval for bitcoin - the naked emperor's new clothes
- Authors
- European Central Bank
- Published
- Feb 22 2024
- Word count
- 2368 words
FT Alphaville also has a column on this.
tl;dr
This is an interesting point. At least in Canada, the "ETFing" of Crypto allowed Canadians to hold it in our Tax Free Savings Account. I don't believe there is an equivalent in the US, so I guess the main incentive to pay that management fee would be safety? You don't have to worry about your crypto wallet being stolen/ETFs are better regulated. Unless I am missing another incentive?
Yeah it's not really an ETF, but an ETP (exchange traded product.)
But it is tax advantaged in the US with retirement accounts and the main incentives are that if you just want BTC exposure the fee is much lower compared to buying physical on coinbase or elsewhere (I think the fee is still waived to free for a handful of the new BTC ETFs, so you pay no premium to get the exposure) and you don't have to learn how to use a crypto exchange, you just use your stock broker.
That all makes sense, thank you!
If the fair value is zero, why do they care so much?
Euro is down 92% against BTC in last 5 years, down 99% since launch, so the market is actually saying the Euro is worthless in BTC terms, despite what ECB says.
Environmental damage... energy mix of miners is increasingly renewables (already over 25% hydro) and nuclear, and decreasingly fossil fuels (fossil fuel mix decreasing 6% YoY).
How much gold does ECB reserve and buy? What is the environmental impact there?
The value of the Euro has literally collapse against Bitcoin. Bitcoin denominated in long-end US Treasuries is at an all-time high.
In which asset is purchasing power vanishing, again?
Bitcoin is designed specifically to be scarce. The technical aspects are smart and interesting. But comparing value like you're doing doesn't make sense. Bitcoin is intentionally deflationary. A fiat currency issued by a government theoretically exists to be a paper/digital representation of the physical wealth in the world as it is created. More businesses get formed? Print more euros. Collective wealth goes up? Print more euros. But of course, what if everything burned down? Well we'd still have our dollars but wouldn't have our wealth, so we'd get instant infinite inflation. Fiat has a loose relationship with total wealth. What happens is we print a little bit too much money, which is better than printing too little and constraining growth by your printing speed. So there's a few percent of inflation per year.
I compare values across a range of monetary assets, BTC is no different from USTs and Gold in that regard, except central banks aren't buying it (at least, not publicly.)
What doesn't make sense to me is why ECB even cares about it. They claim to see it as worthless, and in fact the total market cap of BTC is still like 14x lower than the USD reserves in EM countries... not even a blip on a central banks scale... so why do they keep talking about it? (BTC is up 160% since the last time ECB said it was worthless.) Is it just misdirection so people don't see the news about their first loss since 2014?
I do agree Bitcoin has utility, and thus has value. I think if someone wants to buy certain illegal items - ones that shouldn't be illegal - online, then cryptocurrencies are excellent for that. Getting around laws that exist for often racist or oppressive reasons can be a good thing. And sometimes you might really want that immutability it offers. If both parties can consent to that in an informed manner then cryptocurrency absolutely wins there.
Mostly I think it's a wealth transfer from the gullible to the grifters. But it can be multiple things at the same time.
I see BTC specifically as a terrible asset for that usecase, because it's highly traceable, and thus not good for even justifiable civil disobedience.
Where I see it as useful is that its a self-custodial, user-verifiable asset that speaks the language of gold (scarce, hard to produce, etc...) but over a telecommunications network. So all the time, money, energy spent to assay, audit, transport, and store, gold via armored trucks, armed guards, 747s, cargo ships, bank vaults, etc goes away.
You can get the wallet addresses for the BITB ETF on their website and verify for yourself onchain that they have the exact amount of BTC they claim to have, which is unheard of in the highly scandalous world of commodities trading where nickel turns out to be bags of rocks, and aluminum warehouses turn out to have much less aluminum than they claim.
You're speaking as if Bitcoin is the yardstick by which all other currencies are measured. It is not, that honor still belongs to the U.S. dollar.
Bitcoin is not a practical currency. It is designed to be deflationary, and its value is wholly speculative. It's an investment vehicle.
Some people value things in USD, some in Yuan, some in Gold... I value things in energy and purchasing power.
And I'd still rather have euro's in my pocket than a bitcoin-wallet. The value of BTC on an exchange doesn't say much about the actual worth, which is zero. The only value it has, is selling it for fiat currency after gambling for a profit on a highly volatile speculative stockmarket-y facsimile.
They care because people get conned out of their money through pump and dump schemes and exit scams. They care because it's using a lot of energy to do basically nothing.
You would buy Euro here? Maybe in Norwegian Krone or Argentine Peso
I know you’re annoyed by that statement, but measuring value using Bitcoin is just silly. Its value as an investment aside, it’s not the unit of account for anyone, including Bitcoin miners and holders. Prices are set in other ways.
Holders want to Bitcoin to go up, which implies they measure value in a different way.
Without USTs being the dominate liquid asset, everything is mispriced.
But we're in a world now where 20% of global oil trade is no longer happening in dollars.
Maybe this is a sign that we ought to explore varying denominations.
GLD/TLT
BTC/GLD
EURO/BTC
etc...
Of course, this is a fairyland way to think about things... unless you're a country that has had USD confiscated and sanctioned (or one that is concerned about that and is diversifying out.)
Saying “everything is mispriced” is true, no prices are perfect, but some ways of pricing are clearly better than others. There’s no basket of goods for which Bitcoin with its booms and busts is a stable price. Regardless of how you do the payment, it would be foolish to sign a contract to pay in a year at a price set in Bitcoin, unless you’re intentionally making a bet that Bitcoin won’t go up in a year. People who aren’t cryptocurrency speculators aren’t going to want to bet on that.
It’s not a unit of account if you can’t use it to price a lease for an apartment or as the amount of a paycheck.
I think we're saying the same thing. The global economy depends on liquidity and bid on USTs as the backbone of how we price everything.
No, I’m not talking about anything global. This also isn’t about what assets you can invest in - there are millions of things you can buy, and Bitcoin is one of them. This is about what’s useful locally, as your “native language” when you talk about money.
People do accounting and sign contracts using a variety of national currencies. In Japan it will be the Yen. In countries with stable economies, for local use, it doesn’t matter what foreign exchange rates are when you take out a loan. Borrowing in some other country’s currency would result in exchange rate risk.
But cryptocurrencies and other alternatives like gold are the native currency for no one, so they result in exchange rate risk for everyone. (Other than stablecoins, which are designed to eliminate exchange rate risk for one currency.)
Sometimes the local currency is doing badly enough that saving money using some foreign asset is better, but borrowing money in a foreign currency is still going to be a problem. If the local economy is terrible and you rely on it to make a living, how do you pay it back?
Using a cryptocurrency that’s not tied to anything for accounting and prices is something nobody does (as far as I know), and it would be like speaking Esperanto - the problem is that it’s almost nobody’s first choice, so it has a huge disadvantage versus languages spoken by hundreds of millions. Or maybe compare it to inventing your own system of units as an alternative to the metric system, which would be even harder. There may be opportunities for something new when the local currency has failed, but it’s still a long shot.
This is a huge issue actually and talked about in depth in Hidden Repression: How the IMF and World Bank Sell Exploitation as Development
Renewable energy is only a positive if it replaces nonrenewable sources of energy, so even if crypto mining was using 100% renewables it would still be causing negative environmental impacts. Hydro in particular tends to be the worst one because of the ecological damage it causes from flooding.
Bringing up renewables when it comes to crypto is frankly greenwashing. While it may be better to use renewables it’s still dramatically worse than not using any power at all, which is exactly as it should be considering there is still essentially zero utility from it other then an arbitrary speculative market which is still entirely weighed against its use in terms of fiat currency unless you consider its use in the black market.
Good luck finding a monetary asset that requires no power at all and retains enough value to be tradable on global markets rather than become a collectible note to buy at a local gold/silver store.
There is an enormous gulf between the amount of power bitcoin uses and the amount of power almost any other monetary asset uses per unit. Just because no power is ideal doesn't mean less power isn't something to strive for.
and most of those other monetary assets exceedingly lose their value over time... except for the ones that have a high energy budget to produce and secure... USD/USTs, gold, etc...
Having a long lasting fiat, in the history of money, is exceptionally rare. And a long lasting low energy fiat does not exist. We've kind of figured out in the 70s that offering oil trade protection with military energy is a good way to force other countries to continuously buy dollars and USTs that they can then also use as a backbone to their local currencies (USD and USTs on your balance sheet is a good way to have the optics of a healthy treasury if you have no other way to produce a valuable currency.)
There is a graveyard of low energy FX tradable currencies that have lost 40%+ of their value over just the last 5 years. Some have lost so much value that they are delisted from several indices and essentially are no longer FOREX tradable currencies.
Gold tends to hold value exceedingly well, but it still, after mining, requires a ton of energy to assay, audit, transport, store, using armored trucks, armed guards, bank vaults, 747s, cargo ships, etc. But institutions are willing to spend hundreds of millions of dollars to do this for huge swaths of gold. Especially in an environment where USD can be confiscated and sanctioned politically, and China being a global trade partner is a heavy gold bidder willing to do settlements in gold with countries who can't use USD (aka Russia).
That is an incredibly transparent attempt at deflection. Crypto uses dramatically more power than fiat for much lower trade volume. This is a huge issue.
Let’s not confuse Bitcoin with other cryptocurrencies that have largely solved this. If you mean Bitcoin, say Bitcoin.
This is true for most of fiat (well maybe not trade volume), sans the one that has lasted the longest and will likely continue to last for a long time (USD.)
Unless you consider the energy needed to prop up those fiats with USTs but then you're getting fairly deep in the cocktail of monetary assets we have.
...if it's all so worthless why make a CBDC