This article originally appeared in Fortune Magazine.
On April 29, the SEC is expected to announce its decision on the long-awaited Bitcoin exchange-traded fund, or ETF, another attempt within a long string of failures aimed at bringing Bitcoin to the masses through the stock market. Editor's Note: The SEC announced on April 28 that it was delaying this decision yet again.
As far back as 2017, the crypto industry’s mantra has been that a Bitcoin ETF will be the historic moment that propels Bitcoin into the pockets of Main Street investors. Given the recent bull market, Bitcoin’s all-time price highs, and the general euphoria surrounding the asset class, many crypto pundits have continued to paint a rosy outlook for the upcoming decision.
A U.S. Bitcoin ETF would unquestionably be a watershed moment for cryptocurrency. To date, nine potential S-1s have been filed and two have triggered the regulatory clock that forces the SEC to make an approval or rejection.
While many in the industry wait with bated breath, we are stepping back a moment to take a harder look at what this really means for the industry. For us at Makara, the biggest question is: What benefit will this exchange traded fund actually deliver to cryptocurrency investors?
Crypto assets were not born on Wall Street, and they live outside the bounds of traditional banks. As investor demand continues to swell, it’s easy to forget that these potential ETF products are actually attempting to shackle the crypto asset class into all the constraints that exist with traditional financial products. (Makara offers investors automated exposure to baskets of cryptocurrency based on themes, as opposed to exposure through ETFs.)
Bitcoin and cryptocurrency are built on advanced technologies and incorporate complex economic principles. The blockchain that powers Bitcoin is a technological marvel—creating the concept of digital scarcity for the first time. But they are also complicated and challenging to understand.
The benefit of an ETF is that it makes access to a specific investment easy. ETFs can put Bitcoin into a tidy package that fits within the construct of an investor's existing brokerage accounts. It removes the complexity of private wallets and key management, of having to deal with “scary” crypto exchanges, and some of the challenges of tax planning. But it does so at the cost of participation—both with Bitcoin itself and with the 24/7 nature of this asset class.
There are actually no market hours for crypto, a unique characteristic that's easy to overlook. We know firsthand from living and breathing this industry for the last four years that these markets never close, and more importantly, often do the most unexpected things when most investors are sleeping. Unlike Bitcoin, a Bitcoin ETF will be forced to operate by the same clock as the stock market on which it trades, typically only six and a half hours out of the 24-hours per day that Bitcoin trades. A Bitcoin ETF is available for trading for 32.5 hours out of the 168 hours in a week, less than 20% of the time Bitcoin actually trades. When the market closes, so will access to a Bitcoin ETF’s liquidity.
This is a bigger deal than people may recognize or acknowledge. This is an under-appreciated sacrifice for stuffing a decentralized, time-agnostic asset into the confines of the “banker-defined” stock market.
We’ve seen that holidays can be incredibly volatile for digital gold. A Bitcoin ETF won’t be there for you on Thanksgiving (there have been big moves on Turkey Day) or New Year’s Eve (when the price has popped like a champagne bottle), or two weekends ago (when it dropped 15% on a Saturday night). Investors need to understand cryptocurrency before the banks serve it up in Wall Street’s plastic wrapper.
No doubt, ETFs have virtue—they’ve revolutionized stock investing and provided investors with an incredibly efficient means to access the market. And they’re certainly in my stock portfolio. But it’s important to remember that just because something is easy doesn’t make it right. Investors who want to own Bitcoin should consider investment products where they actually can own and control their Bitcoin.
At the end of the day, the fundamental question investors should ask themselves is this: Do they want to participate in this innovative technology bound by all the constraints that a Wall Street–wrapped investment product presents, or do they want to own a piece of this technological revolution directly?