Is "BTC institutionalization" a positive factor?

Original Article: 《Will BlackRock's Bitcoin ETF Take the Spirit Out of the Honey Badger?》,

Author: Michael J. Casey, Coindesk

Translation: jk, Odaily

"Financial advisors just want a simple narrative."

What is the Meaning of Bitcoin's Existence?

With a number of well-known financial institutions recently announcing the launch of Bitcoin derivatives, the institutionalization of this largest and most important cryptocurrency is on the horizon. While insiders are excited about the expectations of institutional entry (and price increases), I see that this may change the fundamental attributes of Bitcoin.

Bitcoin is a store of value, similar to gold, and its existence as a firewall against the devaluation of fiat currency drives its price. (We can refer to this as Michael Saylor's viewpoint.)

Is it a payment tool for those who are excluded from the financial system for various reasons? (Perhaps we can call this the Salvadoran viewpoint.)

Is it a tool for activists, a mechanism to challenge power? (The viewpoint of the Human Rights Foundation.)

Or, viewed with a more open mindset, can it be seen as an unstoppable record-keeping platform where users can document various valuable content? (The viewpoint of Taproot Wizards.)

I tend to think the answer is "all of the above."

However, if the U.S. Securities and Exchange Commission (SEC) approves the recent ETF applications submitted by BlackRock, WisdomTree, or Invesco—granted, this is a big "if" considering the SEC's past stubbornness—and if it supports the newly established EDX cryptocurrency exchange by Fidelity, Charles Schwab, Citadel, and other financial giants, then these free and open interpretations may be overlooked.

Because financial advisors marketing these products to mainstream clients prefer to tell a simple story. The question is: which viewpoint is the most appropriate?

Inflation Hedge?

Perhaps the most honest way to describe Bitcoin is as an uncorrelated asset, whose price moves independently of other assets over time, providing stability for diversified portfolios and preserving value when stocks, bonds, or commodities decline.

But for financial advisors and their average investors, this description may not be satisfying enough. While they are well-trained to think about diversification and risk hedging, there is often an event-driven narrative behind it. For example: when a recession looms and expected returns decline, the value of your variable income equity assets will be balanced by fixed income assets (like holding bonds).

This is the "inflation hedge" story that is commonly used for Bitcoin. But it's not easy to explain clearly. In 2022, when inflation hit the global economy, Bitcoin suffered losses, contradicting a popular short-term understanding that the price of inflation hedging tools should rise when consumer prices accelerate.

On the other hand, from a long-term perspective, the argument for Bitcoin as an inflation hedge holds water. Over the past decade, Bitcoin has grown 150 times, helping long-term holders more effectively offset the ongoing erosion of the dollar's purchasing power, more so than other widely available investments.

The problem is that the financial industry wants a short-term narrative—after all, professional financial people are typically rewarded based on quarterly performance. What they want is: if X happens, then Y will happen to Bitcoin. But things are not that predictable. Nevertheless, I believe Wall Street will lean towards Saylor's viewpoint. It needs to find some kind of story—although many ETF investors may happily bet without caring about the reasons for Bitcoin's price increase, this heavily regulated industry cannot frame things as gambling—and the concept of long-term store of value is the most easily accepted.

The easiest way to explain it is to call it the "digital gold" story, which has a ready-made analogy that is very familiar to American investors, namely an asset that can perform independently of monetary policy. (Skeptics will naturally bring up the aforementioned experience in 2022, when Bitcoin's price fell with rising expectations of Fed interest rate hikes, while gold's price rose. Wall Street's ETF salespeople will have to address all this with a story about long-term holding strategies.)

Impact

One of the importance of this story is that it will help determine the direction of policy. If Bitcoin is purely viewed as a hedge tool for investors, then it will align with the ongoing regulatory efforts pushed by Washington, D.C. Although Bitcoin has escaped the current regulatory scope of the SEC, labeling other cryptocurrencies as "securities" besides ETH will strengthen other regulatory positions, which may indirectly limit the growth of Bitcoin's usage, although it may not affect its price.

The most important issues involve privacy, KYC, etc. If institutions acknowledge Bitcoin as a form of currency—besides or instead of viewing it as an investment tool—then the rationale for allowing greater degrees of privacy becomes more compelling. But if the dialogue in the U.S. now emphasizes store of value investment strategies, it becomes difficult to oppose regulators imposing stricter KYC requirements.

After all, these investment institutions take compliance with these rules for granted, and they have no loss to support such monitoring. (If consumer demand is as strong as some financial institutions suggest, they can still make a lot of profits even at the lows of a bear market.)

This is not good news for millions who hope the Bitcoin protocol becomes a financial tool or for those who wish to transfer funds safely under oppressive regimes.

It is also not good news for a new generation of developers committed to building Bitcoin-based tokens, such as the Taproot Wizards project, which builds similar non-fungible tokens (NFTs) based on the Ordinals protocol, or the new BRC-20 tokens. KYC conducted at the exchange level hinders the global mainstream impact of these innovative projects, especially if initiatives like the Financial Action Task Force's cryptocurrency "travel rule" find indirect ways to enforce reporting for self-custodied wallets.

Let's take a deep breath. In the words of those who see Bitcoin as the "honey badger of money," ultimately, "Bitcoin doesn't care." Regardless of what actions Washington or Wall Street take regarding its investment and token trading, the network will continue to run, block after block being mined.

The Bitcoin protocol is unstoppable. In fact, if the ETF is approved and mainstream investment flows into Bitcoin, this will drive up prices and attract more hash power into the mining network, making the cost security concept behind the Bitcoin protocol—its essence of "unstoppability"—even stronger.

Faced with this open-source, unstoppable, and uncensorable protocol, innovators will continue to do what they have always done: innovate. Therefore, there will inevitably be solutions to all of this. New methods will emerge that will engage in all other Bitcoin application scenarios without being constrained by Washington and Wall Street regulations.