Are BlackRock and Other Bitcoin ETFs Depriving Bitcoin of Room for Growth?

Author: Marc Taverner, XEROF Co-founder Source: blockworks Translation: Shan Ouba, Golden Finance

Bitcoin has been around for more than 15 years, and now more and more companies and brands are beginning to accept this cryptocurrency as a payment method.

However, for most people, paying with Bitcoin is as unfamiliar as paying with Galactic Credits.

The fact is, Bitcoin in its current form won't be used to buy your coffee. But it might fund a company that changes your life - which is why we need to give it some application space.

By design, Bitcoin is scarce. This makes it a reliable means of storing value, so people want to be able to use it. As Bitcoin is used less and less for everyday transactions (like buying your coffee), it is becoming more popular as a medium of exchange in other ways; for example, strategic investments in startups by funds, venture capital firms, and angel investors. We know this because we see more and more startups looking for providers to convert Bitcoin into fiat currency in order to operate their business (such as paying employees and renting offices). We are also seeing large institutional investors increasingly buying Bitcoin as an alternative investment, seeking to diversify their portfolios and find returns that can withstand market fluctuations. Of course, the recent approval of Bitcoin ETFs has also added to Bitcoin's popularity, with BlackRock Inc. becoming one of the largest Bitcoin buyers in history. As of May 2024, BlackRock's iShares Bitcoin Trust has accumulated more than 274,000 Bitcoins (worth about $16 billion at the time of writing).

Because of this, Bitcoin now appears to be a viable investment opportunity in the eyes of mainstream investment institutions. However, with this comes a worrying problem: large institutional players may monopolize the market, hurting the interests of companies, founders and other investors who still prefer to use Bitcoin as a medium of exchange.

Huge institutions like BlackRock hoarding Bitcoin to fill their Bitcoin ETFs will limit the circulating supply of Bitcoin, which in turn threatens the popularity of Bitcoin.

At the same time, the rise in Bitcoin prices driven by these institutions will make Bitcoin a more attractive asset to invest and hold. This is the "double-edged sword" effect of Bitcoin, and it has caused real problems.

As more companies include Bitcoin on their balance sheets, they need a more liquid ecosystem for Bitcoin trading and exchange. However, the original intention of the Bitcoin ETF is not to "let go" of the Bitcoin they hold. So, what happens next?

The only effective and powerful answer is regulation. It is not to cancel the regulation of existing Bitcoin ETFs, but to support regulators to approve more financial products that leverage the value of Bitcoin so that Bitcoin ETFs are no longer the only market option.

Approval of other financial products leveraged by digital assets (such as the upcoming Ethereum ETF approval decision) can also relieve some ETF purchase pressure. At the same time, issuing more licenses and permits for fiat currency and Bitcoin payment and exchange channels (so that people’s way of getting Bitcoin is not limited to brokers) can also help more Bitcoin flow back into the market.

In the Web3 ecosystem, more and more investors use crypto assets to support promising startups. Many great projects and initiatives have received funding through Bitcoin or other stablecoins, and we should see more such examples in the future.

However, in order to achieve this, we need to ensure that there is enough Bitcoin circulating in the market. This will require more financial products with different buying models and backed by different cryptocurrencies, as well as more mediums of exchange available to investors and companies using Bitcoin to fund their companies.

Best of all, giant companies like BlackRock should get behind this initiative too – if their Bitcoin ETF is any indication, demand for digital currency investment products will only grow.