A War On Wall Street

Back when no one was sure if an exchange-traded fund was ever going to happen for bitcoin
BTC
, I remarked that it would if the regulators thought it would be bad for bitcoin and it would not if they thought it would slingshot the price to the moon.

I been accused of being a cynic as far back as being a school kid and I’ve always taken it as a compliment. If ever there was a place to be cynical, it’s Wall Street and its ecosystem. As far as I can see a cynic is just a realist who doesn’t keep their opinions to themselves. While it’s all well and good to be a naive optimist, it’s a journey bound to be filled with character building lessons and insights.

So the idea is that an ETF that would cramp crypto’s ascent would be allowed to go ahead because one of the prime attractions of bitcoin et al. is its tendency to moon and make lots of leary speculators and aromatic criminals go on a feeding frenzy that ends in tears. Never mind that crypto has the capability to upend the financial system in all kinds of unpredictable ways and for that matter bust all sorts of rent-seeking special interests.

The general feeling has been that an ETF will be great. A bitcoin ETF (or 11 of them) equals “everything is awesome.”

To me, an ETF could go either way. It could help unlock mass adoption and drive demand, driving the price or an ETF could be a cannula for the established financial players to start draining the lifeblood out of bitcoin.

So here is a chart of bitcoin as I write:

The U.S. market opens and down goes bitcoin. Not only does it go down but the volatility explodes as you can see from the sudden amplification of trading ranges. Going from an inefficient to efficient market should show the opposite effect. What you can see is something shonky entering the market as soon as the U.S. equity market comes on stream.

So the explanation for this is that Greyscale is liquidating bitcoin from its trust, as people switch from its bitcoin vehicle into the ETF. This is coupled with profit taking from those who bought the trust at a fat discount and now see a big rise in the bitcoin proportion of the funds assets and a disappearance of the discount.

That is very plausible, but the observation that Wall Street isn’t helping the price of bitcoin remains true. The question is, when this washes out, what happens next?

It’s a tough call but this is what I think the investor has to weigh up.

Wall Street does gold no favors. It suppresses the price by making a very efficient market in gold by diluting the assets with huge piles of paper gold. Cash-settled paper gold smooths out all sorts of supply chain issues that might have gold hold a more elevated price. It’s an old story in commodities and bitcoin is a commodity. It’s not a conspiracy theory, it’s a conspiracy fact. In a world where Wall Street tends to get away with daylight robbery, numerous people have gone to jail for rigging commodities.

That is one side of the picture, but how about this.

Gold was money, then paper became money, so obviously paper gold would take over from metal gold. Paper is money, but bitcoin is digital paper money, so it is natural it will take over from paper money. Paper bitcoin cannot swamp bitcoin, because bitcoin is further up the hierarchy of abstraction. A bitcoin maxi might say, of course Wall Street will fight crypto and bitcoin, but it will lose because crypto and bitcoin is better.

I think the latter is correct. In years to come you won’t see metal money ever and paper money will be rare. However digital money will be everywhere and crypto digital money will be in the process of absorbing that.

The battle between the old and the new has long since commenced, but the bitcoin genie will not go back into the bottle. Wall Street has buildings full of geniuses trying to find weak points in financial assets to exploit and it’s the financial industries “dark forest” that keeps it so efficient. Bitcoin has shown its robustness and it will once again be run through the gauntlet and I believe it will survive it.

We will be able to see that fight every day at NY market open and it’s going to be spicy.

DCA (dollar cost averaging) remains the strategy of choice for believers, a dusting of bitcoin ETF for diversifiers and centralized crypto exchange punting for day traders.