Ethereum
Is Ethereum ETF Good for Bitcoin?
Visual representation of the digital cryptocurrency Ethereum Crypto and Bitcoin, in Brussels, … [+] Belgium on 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 by approving the Ethereum ETF. This surprised me, as well as many others (and most of the Bitcoin community) who expected the SEC to reject the Ethereum ETF application.
Ultimately, this all comes down to a fundamental economic question: Is Bitcoin a substitute or a complement to Ethereum? Some argue that they are complementary: dollars invested in Ethereum will attract new dollars to Bitcoin, away from other assets like stocks and bonds. But I think they are more of a substitute. A fixed share of opinion is devoted to cryptocurrencies, and if any of that share goes to Ethereum, it will come at the expense of investing in Bitcoin.
This endorsement adds a layer of legitimacy to Ethereum that I believe is unwarranted, given Ethereum’s centralization: the decision-making rights of the Ethereum Foundation, the protocol’s history of poor governance (exemplified by previous hard forks), and the outsized influence of its founder. It’s perfectly fine to experiment with new technologies on Ethereum, given its culture of experimentation, and eventually port those technologies to Bitcoin. But experimentation alone doesn’t make Ethereum an asset worth investing in.
What this episode shows overall is the failure of gatekeeping. All gatekeepers – say, securities regulators, central banks, or investment banks – suffer from the same problems of bounded rationality, political influence, and private rent extraction that afflict any central actor. The antidote is free and open competition, and let the market decide.
So while many Bitcoiners welcomed the approval of the Bitcoin ETF in January, in principle it was a mistake to do so, as it only celebrates the role of the government gatekeepers who voted for you. It’s a fragile thread to rely on, as the approval of the Ethereum ETF just showed.