Spot Bitcoin ETFs are here. What’s next? Regulating defi? | Opinion
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Four years ago, the crypto-lambo stunt at the New York Consensus conference garnered the world’s attention. It raised eyebrows among skeptics, boosted the morale of those invested in the industry, and accelerated the clamor for crypto’s real-world purchasing power. In hindsight, it stands as a rockstar moment in crypto history. Cut to the present, the recent ruling on spot Bitcoin ETFs marks a contrasting shift—a ‘family-man’ moment for crypto, ushering in a new era of stability and accessibility.
The numbers don’t lie as far as Bitcoin’s newfound respect goes. Since January 11 this year, Bitcoin ETFs have seen a record $2.8 billion in inflows, nearly 40% of this coming in just the last week. After a downward price curve for several weeks, Bitcoin just rallied to a whooping $50,000 earlier this week.
While this is great news for investors, Bitcoin’s cinematic journey—from being a purely decentralized store of value to a regulated digital asset, does not necessarily mean a step in the right direction for the web3 community.
Returning power to intermediaries?
Originally conceived as a purely peer-to-peer electronic cash system, Bitcoin aimed to remove banking intermediaries and ensure transactional power stayed with people. The idea of a decentralized financial system was romanticized to such an extent that it naturally warranted a loyal community to safeguard its basic tenets. And people came in droves. So did a host of altcoins.
But, with a lack of any kind of regulatory approval and even clarity, Bitcoin and other cryptocurrencies faced the same fate: slow mainstream adoption due to little to no real-world use cases. With no widespread utility, the line between cryptocurrencies being a financial instrument and a speculative playtoy was rapidly getting blurred.
The constant lobbying to get institutional investors to trust in Bitcoin was thus a no-brainer, at least from a practical perspective. While the SEC ruling seems to have solved this, the regulator itself has put out a disclaimer, explicitly stating that it does not show a willingness to approve listing standards for crypto asset securities other than about ETPs holding one non-security commodity: Bitcoin. With other crypto-led funds now lobbying to get the SEC’s approval with the sole aim of getting institutional investors into the ring, it’s unclear if the ruling benefits the community in the form of diversified long-term investments or leans more towards market speculators profiting from day trading in Bitcoin and other cryptocurrencies.
Shift in regulatory sentiment and revival of digital assets
As Bitcoin OGs and their detractors decide which side of the fence is greener, one thing that cannot be ignored is how the recent ruling has softened the level of notoriety around crypto assets. There are reports of regulators in Hong Kong receiving applications for crypto ETFs, with more countries expected to see action on this front. Efforts of other major financial hubs, such as Singapore and the United Arab Emirates, to frame policies around crypto investments are also being seen in a new light.
A tangential benefit to the recent ruling is the revival of certain digital asset classes, which hold great potential but petered out early on due to the hype circus. The fact that the SEC ruling came just in time for the much anticipated crypto bull market makes it harder to pinpoint if it is the one genuinely driving renewed investor appetite for these digital assets. NFTs, for example, were seen as the next big thing a couple of years ago before their transition into a product of speculation hampered more mainstream adoption. Recently, the NFT market has been witnessing a see-saw in fortunes. A strong December 2023 followed a dip in January this year, although analysts expect the NFT market to regain momentum in the run-up to Bitcoin halving.
Defi markets and altcoins are other segments that sustained investor appetite much before the SEC ruling. It goes without saying that defi products have always found favor for their real-world applications. Early reports suggest that increased investor attention around Bitcoin will lead to a more significant investment appetite for defi products in the coming weeks. On the other hand, the inverse holds true as well. Bitcoin ETFs may compete for capital allocation, impacting liquidity for defi products. Then, there is the increased regulatory scrutiny that we can expect defi to face going forward, thanks to the sector’s close connection with the crypto industry. The SEC seems to have already put the defi sector on notice, seeking to make digital assets firms comply with the same rules as all other securities exchanges. Thus, there is every reason to believe defi’s cowboy sprint will be reined in, impacting innovation and long-term investments in the sector.
As with any new industry milestone, it’s still early days to judge the impact of the SEC ruling on the crypto sector. The sector indeed needed people’s trust worldwide, and the SEC ruling has at least helped cross half of that bridge. There is a higher level of crypto adoption today and an increasing curiosity among people of all generations to understand the nuances of crypto technology.
But as Vitalik Buterin said, the success of crypto is not because it empowers better people but because it empowers better institutions. Crossing the bridge in full requires all stakeholders to apply crypto assets solely for the welfare of humanity without making it just another tool for financial speculation. That’s when the real magic takes shape.
