Amid Rising Bitcoin ETF Hopes, Critics Warn of Vulnerability and Echoes of Precious Metal Manipulation

In recent months, the buzz around a potential bitcoin exchange-traded fund (ETF) has surged, echoing in its climbing price. But the enthusiasm isn’t universal. Some fear a spot bitcoin ETF could make BTC vulnerable, much like the gold and silver markets. The approval might open doors to manipulative practices reminiscent of those alleged in precious metals.

With a Physically-Settled Bitcoin ETF on the Horizon, Skeptics Foresee Gold-Like Manipulation Risks

A tangible bitcoin ETF might seem like a boon for crypto growth and valuation. However, there are concerns it could mirror gold and silver ETFs, using fictional BTC supplies as leverage for futures. Rapid price hikes could be countered by releasing this made-up supply. Instead of acquiring real bitcoin, buying into a bitcoin ETF wouldn’t diminish the actual supply. Operators of the ETF might leverage positions far exceeding their verifiable assets, swaying prices.

On October 16, 2023, Josef Tětek, a BTC analyst at Trezor, remarked that an “ETF is fiatization of bitcoin.” Tětek opines that long-term, an ETF might not benefit BTC. He asserted, “[A] bitcoin ETF is one of the worst things that can happen to bitcoin adoption. It is an attack on self-custody, substituting actual usage (whether as a MoE or SoV) for dumb price speculation.”

Tětek elaborated further:

ETFs are much worse than exchanges, as we can at least incite bank runs on exchanges and test their solvency – and if they prove to be running a paper bitcoin ponzi scheme, they collapse before they grow too large (FTX, Blockfi, etc.).

The first gold exchange-traded product (ETP) debuted in 1961 as a closed-end fund. By 1983, it opened its doors to a wider investor base. In 1986, after two decades on the Toronto Stock Exchange, it found its place on the U.S. Stock Exchange. March 2003 saw the listing of the first physical gold ETF, “Gold Bullion Securities.” Since these introductions, many have pointed fingers at ETFs and financial powerhouses for allegedly rigging precious metal prices.

This suspicion extends to a bitcoin ETF, where an ETF’s 100,000 BTC might be overshadowed by unchecked paper. Such an ETF could conveniently leverage fictitious supplies, assisting corporations in hedging vast derivatives bets. When prices balloon suddenly, this illusory supply might be released to curb the surge. Gold has allegedly been a victim of such practices. For example, two ex-JPMorgan metals traders faced fraud convictions last year for a gold market ploy, along with other precious metals.

In 2020, JPMorgan settled U.S. allegations of precious metals futures price manipulation from 2008-2016. Silver is also believed to suffer similar manipulation. Large financial entities are often accused of using short positions to suppress silver prices. Such underhanded tactics against gold and silver have been highlighted in various research papers and exposés. There’s a growing apprehension that the decentralized crypto world might face the same fate.

“A spot bitcoin ETF will be bad because it will allow Blackrock to purchase and control bitcoin, bought with other people’s dollars,” explained an individual on the social media platform X. “They will get a seat at the table, they didn’t earn. I don’t think you realize how bad this will be for plebs. We don’t want Mr. Fink at our table.”

While bitcoin ETFs may democratize access, naysayers believe they mask leverage and speculative practices from oversight bodies and investors. As with precious metals ETFs, price discovery might be twisted. “Best State attack on bitcoin ever – An ETF,” explained another bitcoin enthusiast on social media this week. “The funniest part is that bitcoiners are desperate for an ETF.” Another X user echoed the sentiment, foreseeing a gloomy future for the decentralized crypto.

“The approval of the spot ETF will be good for short-term traders as price will skyrocket,” the person posted. “But it will be bad for all the small retail bitcoin investors, as we won‘t see the actual price level again. As soon as the big boys step in, bitcoin becomes political.” Yet, not all concur with this thesis. Another user on X argued that painting an ETF as a villain is ludicrous, believing that the indomitable decentralized nature of bitcoin will always prevail.

“Bitcoin ETF bad [for] bitcoin,” the person said in jest. “People who say this think bitcoin is like gold. They do not understand that you cannot control bitcoin in the long run. Let Wall Street create all the ETFs they want. They will never be able to control bitcoin.”

What do you think about the critics of a spot bitcoin ETF? Do you think they have valid fears? Share your thoughts and opinions about this subject in the comments section below.

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