BlackRock’s misguided effort to create ‘Crypto for Dummies’

BlackRock, a multinational investment company, shocked many in the cryptocurrency industry in June when it filed an application for an exchange-traded fund (ETF), the iShares Bitcoin Trust. It’s seeking to overcome 10-year-long opposition from United States regulators to cryptocurrency ETFs. A spot Bitcoin ETF would be tradable on a traditional stock exchange and track with the market.

While supporters argue that ETFs are tax-efficient, easy to trade and cheap, BlackRock’s approach is arguably misguided. It is important to keep in mind that ETFs do not have the same focus or goals as Bitcoin (BTC).

Problems with the traditional finance sector

The traditional finance sector has long been dominated by institutions that control the flow of capital and dictate the terms of finance. Many people feel disenfranchised by these institutions, feeling they have restricted access to wealth creation, developing barriers for individuals and small businesses.

Related: Bitcoin ETFs: Even worse for crypto than central exchanges

Therefore, the arrival of cryptocurrencies presented a significant opportunity to offer an alternative to the traditional finance system that promises increased autonomy, inclusivity and transparency. However, merging traditional finance and decentralized finance (DeFi) is critical for mass adoption.

Bitcoin ETF next deadline August 13th

(But this is for the ARK re-filing)

Likely gets postponed IMO while most eyes will be watching Sept 2nd for BlackRock ETF deadline

BlackRock likely the first approved, if any, as the rest are just re-filing pic.twitter.com/h2ESr6aMnp

— Rager (@Rager) August 5, 2023

We need to move toward an industry where DeFi can serve legacy financial institutions rather than view them as targets. Major banks and players want to get into crypto, but there is also a potential for the general public to enter this new world in the future and address the many limitations or barriers associated with the traditional finance sector. The arrival of ETFs represents the financial industry’s attempts to integrate the innovation of cryptocurrencies.

ETFs promote centralization

There are many different kinds of cryptocurrency exchanges. The most popular are centralized exchanges — like FTX. Centralized exchanges hold the private keys to their clients’ wallets, and they generally require users to undergo a Know Your Customer (KYC) process to help curb illicit and illegal activities.

Decentralized cryptocurrency exchanges, by contrast, are built atop a decentralized, noncustodial blockchain system that supports direct peer-to-peer transactions. This approach essentially removes the need for intermediaries. Users do not have to complete the KYC process — which means people living under repressive governments have an opportunity to participate. They also maintain autonomy over their private keys and are solely responsible for the security of their funds — which they can stake to earn interest.

Related: Don’t be naive — BlackRock’s ETF won’t be bullish for Bitcoin

Crypto’s ability to offer these advantages — especially to unbanked users who are unable to access traditional banking services — is the entire point of the industry.

ETFs, on the other hand, are inherently centralized products, creating a conflict with the decentralized nature of Bitcoin and other cryptocurrencies. They offer none of the advantages that comprise the foundation of cryptocurrency, nor do they encourage new users to become involved.

In addition to undermining Bitcoin’s core principles of decentralization and trustless transactions, ETFs also introduce the problem of “paper” Bitcoin — BTC that exists only on paper. With no ability to withdraw the “Bitcoin” you supposedly own, the prospect of FTX-style catastrophes arising in the future becomes much likelier.

We need to demystify cryptocurrency — not create a “Crypto for Dummies” fund

Most people do not grasp the basics of Bitcoin, nonfungible tokens or cryptocurrencies in general. It’s critical that those of us who are in cryptocurrency identify a comfortable entry point into the crypto world for the general public to engage. Demystifying cryptocurrencies and Bitcoin will lead to broader adoption. Transforming Bitcoin into an easily tradable asset could dilute its role as a revolutionary decentralized currency.

Traditional finance should be leveraged as a stabilizing force. Its structures could potentially offer stability to the volatile crypto market. If implemented properly, they could provide security, accessibility and trust, and even attract more mainstream investors to cryptocurrencies. Strict regulatory oversight could also legitimize Bitcoin and cryptocurrencies for the general public and financial institutions.

There is a huge need for evolution in traditional finance. Institutions must adapt and evolve to fully embrace cryptocurrencies. They should incorporate the ethos of decentralization and autonomy that cryptocurrencies represent rather than simply integrating Bitcoin into existing structures. And that means BlackRock should consider putting the kibosh on its Bitcoin ETF.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.