Author: Avik Roy, Forbes; Compiled by: Qin Jin, Carbon Chain Value
Much of the discussion about the SEC’s approval of the long-awaited Bitcoin spot ETF has centered around how the SEC’s actions will affect the price of Bitcoin. But this is only a short-term story.
The most far-reaching impact of ETFs promoting the institutionalization of Bitcoin is that it will be extremely difficult for the United States to ban digital assets, allowing Bitcoin to permanently promote the basic way money works. evolution.
Why is creating more money popular in the short term?
15 years ago, when Satoshi Nakamoto published the "Bitcoin White Paper", he re-elaborated long-standing concerns about monetary political economy: Governments have strong political incentives to devalue their official currencies in order to spend more than they take in.
Increasing government spending is politically popular, while increasing government taxes is unpopular. So governments are always trying to borrow to increase spending without raising taxes, and when borrowing doesn't work anymore, they create more money out of thin air.
In the short term, this works politically because politicians can win re-election by spending more on favored voters. But in the long run, an increase in the quantity of money leads to a decrease in the purchasing power of each unit of money: simply put, inflation.
Satoshi Nakamoto and his compatriots worked hard to solve this problem and fixed the supply of Bitcoin at 21 million units. Unlike the supply of dollars, euros, yen, or yuan, which increases over time, the total amount of Bitcoin in circulation cannot be changed by politicians. In theory, this makes Bitcoin a more reliable long-term store of value relative to modern fiat currencies.
Can the US government ban Bitcoin?
If Bitcoin does become a superior store of value to the U.S. dollar, some fear the U.S. government will ban the cryptocurrency. Ray Dalio, founder of Bridgewater Associates, said in an interview with Andy Serwer of Yahoo Finance in 2021: "The possibility of banning Bitcoin is very high." The war as early as the 1930s In the 1990s, Dalio observed, governments feared a flight from the U.S. dollar to gold, so “they outlawed (private ownership of) gold…and they also instituted exchange controls because they (didn’t) want the money to go elsewhere. .”
Technically, the U.S. government can’t ban Bitcoin, just like it can’t ban the Internet. Bitcoin operates on a distributed computer network that operates outside of U.S. jurisdiction. In fact, despite China banning Bitcoin mining in 2021, the Cambridge Center for Alternative Finance estimates that at the beginning of 2022, approximately one-fifth of Bitcoin miners’ electricity consumption still occurred in China. Cryptocurrency traders in China often use virtual private networks and other tools to hide from government law enforcement agents.
But this does not mean that the US government has no influence. In theory, the United States could ban the exchange of U.S. dollars for Bitcoin on exchanges such as Coinbase or Kraken. The United States could ban mainstream banks from doing business with Bitcoin businesses. The United States could make it impossible for companies like Microstrategy to have Bitcoin on their balance sheets, either through SEC mandates or accounting rules. Governments may erect barriers to prevent retail businesses from accepting Bitcoin payments.
In other words, while the United States cannot ban the operation of the Bitcoin network, it can theoretically make it extremely difficult for mainstream Americans to use and purchase Bitcoin. , just like Franklin Roosevelt banned private ownership of gold in 1933.
ETF makes banning Bitcoin extremely difficult
That's where the new Bitcoin ETF comes in. With the stroke of a pen from the U.S. Securities and Exchange Commission (SEC), we can now see that some of the biggest and most powerful companies in finance, including BlackRock, Fidelity, InvescoIVZ and Franklin Templeton - will Holds billions of dollars in Bitcoin. ETFs give immediate exposure to Bitcoin to a large number of investors who have never traded on a cryptocurrency exchange or held Bitcoin keys privately.
This is important because it greatly expands the special interests that support maintaining and strengthening Bitcoin's role in U.S. financial markets. If you're a member of Congress who doesn't like Bitcoin, or an ambitious regulator who wants to enact some of the restrictive policies I've described above, you're going to hear from more than just Bitcoin holders. You will also hear from major financial players who have considerable influence in Washington.
For this reason alone, it will be difficult for policymakers to actively restrict the application of Bitcoin. As someone who frequently interacts with Washington, I can attest to the conventional wisdom that special interests play a very important role in the policymaking process. Lobbyists are particularly adept at opposing new policies that adversely affect the interests of their clients.
Today, more than $25 billion in Bitcoin is held in ETFs, about $1 billion of which came after the SEC gave the green light to new ETFs Produced within two weeks. Even for a financial giant like BlackRock, that's real money.
The U.S. SEC knows what it has done
U.S. Securities The Exchange knows all this, which is why the fight to approve a Bitcoin ETF is so fierce. Under SEC laws, it is not the commission’s job to decide whether Bitcoin is a good investment, but rather it is up to investors and the market to decide. However, for the past 10 years, the SEC has staunchly resisted giving investors access to Bitcoin through mainstream, regulated vehicles. This is precisely because the SEC knows that its endorsement can greatly increase investor interest in digital assets.
The SEC only approved a spot Bitcoin ETF under duress from a unanimous opinion written by Neomi Rao of the U.S. Court of Appeals for the D.C. Circuit, which stated that the SEC’s The boycott of Bitcoin ETFs is "willful and arbitrary" because the agency has already approved nearly identical products for Bitcoin futures and other commodities.
U.S. Securities and Exchange Commission Chairman Gary Gensler has said many times that Rao's opinions forced him to take action. Based on these circumstances, Gensler wrote in a statement, “I believe the most sustainable path forward is to approve the listing,” even as he blasted Bitcoin as “primarily a speculative, volatile asset that is also used for illegal activities, including ransomware, money laundering, sanctions evasion and terrorist financing." Two other Democratic appointees on the committee, Caroline Crenshaw and Jaime Lizárraga, voted against the ETF listing in January.
What happens in a crisis?
I've explained why the approval of a Bitcoin ETF makes it difficult for the government to dismantle the Bitcoin market in the United States, at least for the foreseeable future . But what if the Satoshi bulls are right and Bitcoin rises high enough to compete with the U.S. dollar as a store of value? By then, will the United States step in and suppress Bitcoin?
You can try it. But by then, it's actually too late. Take Argentina for example. The Argentine government prohibits its citizens from converting more than $200 of Argentine pesos into U.S. dollars each year. Despite this restriction, Argentina's central bank estimates that Argentines hold 10% of the total dollars in circulation: more than $200 billion in cash.
Currently, the U.S. federal debt is about $34 trillion, which actually means there are about $34 trillion in national debt in circulation. Bitcoin’s liquidity—that is, its attractiveness to large institutions as a store of value—will likely kick in at around one-fifth of its value (say, $7 trillion, roughly nine times Bitcoin’s current market cap) Competing with U.S. Treasuries. As federal debt continues to grow, so will the threshold for competition for liquidity.
However, if we follow the circular logic, Bitcoin's market capitalization will only reach that level when it gains wider acceptance as a store of value than it currently does. $7 trillion. By then, the U.S. crackdown on Bitcoin is likely to be counterproductive, just like Argentina’s current capital controls, because the crackdown would send a signal to world markets that the U.S. no longer believes in the dollar’s inherent superiority.
Support fiscal reform
Under the best circumstances , the United States would address its fiscal problems—most notably overspending on health care benefits—and put the federal debt on a sustainable path. But until then, Americans can buy Bitcoin as insurance against the dollar’s decline as federal debt soars. The SEC just ensured that this insurance will be in place for the long term.
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