The Prospects and Perils of Bitcoin ETFs: Balancing Potential Benefits and Long-Term Risks

In recent weeks, there has been a surge in traditional finance's interest in crypto-based exchange-traded funds (ETFs). Following regulatory issues with their initial filing, BlackRock submitted a fresh application for a Bitcoin ETF on July 3. In a similar vein, Fidelity and other investment firms have lodged applications with the SEC for Bitcoin-based ETFs. Notably, HSBC has become the first bank to offer Bitcoin and Ether ETFs to customers in Hong Kong.

However, in the world of Bitcoin, positive news can sometimes have negative long-term consequences, while short-term negative news can actually strengthen the case for Bitcoin. A prime example of the latter is the "Blocksize War" in 2017, which led to vital lessons in decentralized consensus and the development of the Lightning Network.

Conversely, seemingly positive news can turn negative. FTX, once considered a symbol of crypto's mainstream adoption, ultimately collapsed and resulted in substantial losses, significantly setting back the industry's credibility.

The potential approval of Bitcoin ETFs presents certain risks. ETFs do not allow for the withdrawal of the underlying asset, preventing holders from exercising full control over their funds. Moreover, there is a danger of an influx of "paper Bitcoin" if ETFs become the dominant investment method, artificially suppressing the price of Bitcoin.

In the realm of Bitcoin, true ownership is closely tied to having control over cryptographic keys. While it may be possible to own Bitcoin through an exchange account or ETF share, it is not advisable due to the risks of theft and mismanagement. The only adoption that truly matters for Bitcoin's success is self-custody, where individuals have control over their own keys.