BitMEX founder Arthur Hayes says the traditional finance (TradFi) world could gain dangerous levels of power over Bitcoin (BTC) if they manage to control spot BTC exchange-traded funds (ETFs).
In a new essay, the crypto veteran says that if ETFs managed by TradFi asset managers are too successful, “they will completely destroy Bitcoin.”
Hayes says that for Bitcoin to survive, its coins must move around enough to generate rewards for miners, thus keeping the network secure and decentralized.
With block rewards gradually dropping until they hit zero in the year 2140, Hayes notes that miners will only receive Bitcoin income via fees if the network is used for transactions.
However, if institutions are simply hoarding most of the coins in cold storage to back their ETFs, Hayes says there won’t be enough BTC movement to generate fees and secure the blockchain.
“BlackRock, the world’s largest TradFi asset manager, is in the asset accumulation game. They vacuum up assets, store them in a metaphorical vault, issue a tradable security, and charge a management fee for their ‘hard’ work.
They don’t use the things they hold on behalf of their clients, which presents a problem for Bitcoin if we take an extreme view of a possible future.
Imagine a future where the largest Western and Chinese asset managers hold all the Bitcoin in circulation. This happens organically as people confuse a financial asset with a store of value. Because of their confusion and laziness, people purchase Bitcoin ETF derivatives rather than buying and hodling Bitcoin in self-custodied wallets.
Now that a handful of firms hold all the Bitcoin, and have no actual use for the Bitcoin blockchain, the coins never move again. The end result is miners turn off their machines as they can no longer pay for the energy required to run them. Bye-bye, Bitcoin!”
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