News
Is Ethereum ETF a Good Solution for Bitcoin?
Visual representation of the digital cryptocurrency Ethereum Crypto and Bitcoin, in Brussels, … [+] Belgium, September 22, 2022. (Photo illustration by Jonathan Raa/NurPhoto via Getty Images)
NurPhoto via Getty Images
The Securities and Exchange Commission (SEC) shocked the world with its approval of the Ethereum ETF. This surprised me and many others (and most of the Bitcoin community) who fully expected the SEC to reject the application for Ethereum ETFs.
Ultimately, it comes down to a fundamental economic question: Is Bitcoin a substitute or a complement to Ethereum? Some argue that they are complements: dollars invested in Ethereum will attract new dollars into Bitcoin, away from other assets like stocks and bonds. But I think they are more like substitutes. There is a fixed amount of mindshare dedicated to cryptocurrencies, and if any of that goes to Ethereum, it will be at the expense of the investment in Bitcoin.
The approval adds a level of legitimacy to Ethereum that I don’t think is warranted, given Ethereum’s centralization: the Ethereum Foundation’s decision-making rights, the protocol’s history of poor governance (illustrated by previous hard forks), and the disproportionate influence of its founder. It’s fine to experiment with new technologies on Ethereum, given its culture of experimentation, and eventually move those technologies to Bitcoin. But that experimentation alone doesn’t make Ethereum an investable asset.
What this whole episode demonstrates is the failure of gatekeeping. All gatekeepers, whether securities regulators, central banks, or investment bankers, suffer from the same problems of bounded rationality, political influence, and private rent extraction that affect any central player. The antidote is free and open competition and letting the market decide.
So while many Bitcoiners applauded the approval of the Bitcoin ETF in January, it was fundamentally wrong to do so, as it only celebrates the role of government gatekeepers who voted in your favor. It’s a fine line to walk, as the approval of the Ethereum ETF just proved.