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The regulatory approval of an exchange-traded fund isn’t supposed to be a mass-media event worthy of Wrestlemania. Yet here we are.The hype around USspot Bitcoin ETFs has reached meme levels akin to pandemic-era laser eyes: Crypto prices aresoaring, hackersare mobilisingand Redditors are pumping. But the promise of game-changing, gold-like adoptionlooks like a meme too far. Thespeculative build-up to USSecurities andExchange Commissionapprovalof the product has been music to the ears ofWall Streeters scrambling to flog ETFs atlow, lowprices— with fees set at around 0.2% to 0.4% and the prospect of as much as $4 billion beinggathered on the first day alone for some 11 funds in the pipeline, according to Bloomberg Intelligence. Crypto bros should feel free to gloat as ETF leader BlackRock Inc.’s Larry Fink flipsfrom callingBitcoin an “index of money laundering” to saying it’s “digitalising gold.” Yet cooler heads might wonder what happens next. The optimistic thesis from those who have been pushingfor this kind ofETF for years, such as theWinklevoss twins, is that this is indeed Gold 2.0.If Bitcoin is increasingly held as a digital store of value, more a shiny object to hoard than a fintech killer app, analysts reckonthere’s muchmore upsideto the current price. The twins’ crypto exchange, Gemini,reckonsan ETF iskey to making Bitcoin look like a legitimate home for a chunk of $36.7 trillion of savings and retirement cash —similar to the adoption of gold after itsfirst ETF20 years ago. But the road to Gold 2.0 for Bitcoin looks neither straight nor shiny. The approval of a spot ETF in 2024 comes fairly late: Bitcoin isn’t an unknown quantity and there are already many ways to get exposure, from stocks to ETF-like products. Thefact these products have tended to start off with a bang before fizzling out, underperforming orevenshutting down— similar to the crypto market’shype cycles — means financial advisers mayfind it easier to preach to the converted than drum up support from nervous neophytes. So, yes, new spot ETFs may do well, but that may have a lot to do withmoney that’s already inside the crypto system looking for a cheaper ormore efficient home than what’s currently available, saysJonathan Bier, chief investment officer at Farside Investors. Meanwhile, pitching Bitcoinas a commodity-like store of value akin togold — ETF or no — has another problem: Its track record. The history of gold proves that it can work as a hedge againstinflation, according to analysis by S&P Global Incpublishedin May, which found gold and inflation expectations had tracked each other “quite well” since 2003 to a level consistent with causality. And during any major stock-market correction, gold has also been an effective hedge,accordingto a Morningstar report from August. Bitcoin has displayed none of these attributes. The digital currency is certainly good at capturing some of gold’s speculative qualities. You can buy it, hold it, gaze at it (in your digital wallet), then sell it (and later regret it). There’s no passive income to be derived from it. The only thing to do is talk about it, often at length, online, at family gatherings, in chatrooms, until your family and friends no longer want to see or speak to you (until the price goes up again). But that doesn’t make it a safe, retirement-friendly asset. The SEC’sfoot-draggingover approving a spot Bitcoin ETF speaks to the regulatory gray zones that still exist —not to mention this week’smarket-moving hoax tweet from the SEC’s official account claiming ETFs had been approved, which the regulator said was due to “unauthorized” access by an “unknown” party. As Coinbase Global Inc., in battling the SEC over its definition of whether tokens on its platform constituted securities, said last year: “A token sale on Coinbase is no different from a trade of a baseball card or Pokemon card or a Beanie Baby or a painting or bitcoin or ether.” Is this really the future of finance?The main lesson here seems to be that crypto’s current attractionis about piggy-backing on the legitimacy of institutions, from the SEC to ETFs, much like the stamp of the sovereign gives value to a gold coin. It says nothing about where the chips will eventually fall in a world still searching for a crypto use case where central banks issue digital currencies, investment banks issue stablecoins, and BlackRock and its peersoffer Bitcoin funds. The memes are glittering, but this isn’t gold. Lionel Laurentis a Bloomberg Opinion columnist. Views do not represent the stand of this publication.Credit: Bloomberg
