Opinion: Agne Linge, Head of Growth at Wefi
Disrupting and competing with Decentralized Financial (DEFI) Tradfi has been the dream of many innovators in the Crypto field. Some of them praised the net inflow of over $40 billion to find Bitcoin (BTC) funds (ETFs) recorded in the US since the regulated drama last January, as the industry’s final victory.
This shows that more and more investors are interested in crypto and treating it as a legitimate asset, but U-turns on core principles of independent, unauthorized access, borderless value transfers are a major victory for the industry. Crypto-based ETFs simply centralize what is built to resist centralization.
Spot Crypto ETF
Advocates of crypto-based ETFs have compelling cases for adopting these devices. ETFs traded in the market have opened the door for a whole new class of investors who have previously been reluctant to put their funds into crypto due to the lack of regulations and technical barriers to understanding crypto infrastructure. Ease of access and process streamlining are the main selling points of Spot Crypto ETFs, allowing you to diversify the way you are familiar with your new assets through brokerage companies rather than actual owners. Furthermore, greater clarity in regulations will increase the profile of the crypto industry and give more confidence to potential investors. For many, cryptographic ETFs represent gateways to digital assets and versions of crypto that feel safer, simpler, and more consistent with traditional financial norms.
However, not all ETFs are born the same, and the design of these funds changes jurisdiction by jurisdiction, indicating how much actual “crypto” exists. Hong Kong operates a unique, physical ETF model, requiring actual cryptographic support, allowing customers to deliver or receive underlying coins in exchange for ETF stocks. It differs greatly from the US cash-based model, and requires the creation and redemption of ETF shares to be processed in US dollars.
This cash-based approach abstracts away from crypto and adds a layer of Fiat currency. This will enhance the SEC’s ability to detect operations and fraud and protect the investor community with regulations originally designed for TRADFI. It’s not just technology. Wall Street funds sell market volatility and don’t care about the underlying assets.
Exposure is not equivalent to ownership
Spot ETF is an attempt to normalize encryption and fit it to Tradfi’s architecture. However, this attempt is Procrustean Bed for digital assets. Any compliance with non-native standards inevitably introduces additional risks. Holders of ETF shares face custodian risk and entrust assets intended to be held directly to third parties. There is also an erosion management fee that will return over time and are subject to tracking errors. In this case, the performance of the ETF can diverge from the underlying asset due to higher transaction costs or system inefficiency. These issues were specific to Tradfi and Defi was supposed to solve them. Instead, the ETF traps the code in a very financial cage intended to escape. Investors get exposure, but lose empowerment. It’s like seeing a lion through a bar and calling it a wild.
Recently: Crypto ETFs do not lose their “gloss” even as wallet adoption grows
The most important thing about Spot ETFS is that it violates the basic principles of Defi and some coin toconomies. Major TRADFI players have rapidly accumulated BTC and Ether (ETH) holdings, congesting cryptocurrency managers, and BlackRock Islands Bitcoin Trust has seen almost $5 billion amid leaks from other players. For ETH and Solana (SOL), large-scale focused players can create chokepoints in the proof-of-before verification mechanism and destroy the ecosystem, as they are on track to approve their own ETFs. ETF’s hold-and-forget model could prove fatal for cryptography.
Unlike actual coins, ETF stocks do not have a convenient yield. ETF owners lack the ability to participate in governance votes, gaining yields and earning income-generating Defi protocols. Concentrations attributable to ETFs essentially allow agencies to control several ecosystems, direct conditions and impose decisions on the wider community.
Convenience at the expense of ethos
Spot ETFs are basically missing out on cryptographic points. The beauty of Defi lies in its independent nature. The idea is that individuals need to hold assets, control keys and act freely from intermediaries. That is the reason and foundation for the scale of innovation in today’s crypto industry. ETFs sell exposure to BTC and ETH (and other altcoins in the future), but simple price fluctuations do not constrain the value of the crypto. Defi promises a better financial system, but without agency and community involvement, we will not reach this goal.
Yes, ETFs are convenient. Yes, there is more surveillance in the ETF. And yes, ETFs managed by well-known companies like BlackRock and Fidelity may give retail investors safety and transparency. However, the crypto industry must not forget the spirit of cryptocurrency and the core principles of the industry. Direct ownership protects the financial freedom of individual owners, unlocks additional revenue streams, and maintains innovation and improvement through community participation. It is ironic to return to trustworthy intermediaries in systems originally designed to remove the need for trust. This is a regression.
Opinion: Agne Linge, Head of Growth at Wefi.
This article is for general informational purposes and is not intended to be considered legal or investment advice, and should not be done. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or express Cointregraph’s views and opinions.
