Bitcoin’s future in jeopardy: BitMEX founder warns of potential threat from traditional finance ETFs


  • Traditional finance ETFs could harm Bitcoin by hoarding coins and reducing miner incentives.
  • Accumulation of Bitcoins for ETFs, without using them for transactions, may weaken network fees and security.
  • Bitcoin’s future faces risks from traditional finance control despite its current price of $43,902

Cryptocurrency pioneer Arthur Hayes raises concerns about the impact of traditional finance-controlled Bitcoin ETFs on the cryptocurrency’s future.

Bitcoin, the world’s leading cryptocurrency, has been on a remarkable journey since its inception over a decade ago. However, according to Arthur Hayes, the founder of BitMEX, one of the prominent cryptocurrency exchanges, its future may be at risk. 

In a recently published essay, Hayes has voiced concerns about the potential danger traditional finance-controlled Bitcoin exchange-traded funds (ETFs) pose to the cryptocurrency’s integrity and decentralization.

Traditional finance’s growing influence

Hayes argues that if ETFs managed by traditional financial asset managers, often referred to as “TradFi,” gain too much traction, they could wield significant power over Bitcoin. He contends that if these ETFs become overly successful, they could “destroy Bitcoin,” as we know it. To understand this concern, it’s crucial to delve into the heart of Bitcoin’s operation.

One of Bitcoin’s fundamental strengths lies in its decentralized nature and the security of its underlying blockchain. To maintain this security, Bitcoin miners validate transactions on the network and secure them by solving complex mathematical puzzles. 

In return, miners are rewarded with newly minted Bitcoins, known as block rewards. However, these rewards decrease over time and are set to reach zero by 2140.

Hayes points out that for Bitcoin to survive and maintain a decentralized network, it is essential for the cryptocurrency to have a sufficient level of transaction activity. This activity generates fees for miners, which are crucial for incentivizing them to continue supporting the network. As block rewards diminish, transaction fees become miners’ primary source of income.

The threat of ETFs accumulating Bitcoin

The concern raised by Hayes is that if traditional asset managers accumulate a significant portion of Bitcoin to back their ETFs, it could lead to a scenario where most Bitcoins are held in cold storage and rarely moved. 

These institutions, such as BlackRock, would collect assets, store them securely, and issue tradable securities backed by those assets. However, they may not actively use Bitcoin for transactions or other purposes.

In this hypothetical scenario, where the largest Western and Chinese asset managers hold the majority of circulating Bitcoins, Hayes worries that Bitcoin would effectively become immobilized. The lack of Bitcoin movement would result in minimal transaction fees being generated, which could cause miners to turn off their mining machines due to the inability to cover energy costs. This scenario could lead to a decline in the security and decentralization of the Bitcoin network.

Hayes concludes his essay by emphasizing the potential consequences of such a future. He warns that if people choose to invest in Bitcoin ETF derivatives rather than holding Bitcoin in self-custodial wallets, it could inadvertently lead to a situation where traditional financial institutions control the majority of Bitcoins. 

If these institutions have no intention of using Bitcoin for transactions, the network’s security could be compromised, and Bitcoin as a whole could be in jeopardy.

As of the time of writing, Bitcoin is trading at $43,902, reflecting its continued presence in the financial landscape. However, Hayes’ concerns raise important questions about the cryptocurrency’s long-term viability and resilience in the face of potential threats from traditional finance.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Ibrahim Abdulaziz

A fervent advocate, Ibrahim shares his wealth of knowledge on crypto and blockchain technology in an engaging and informative style. He frequents places where influencers gather for his next scoop. His vision is that the decentralized nature, security features, and potential for financial inclusion will drive widespread massive crypto adoption.

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