Pyrrhic Victory

“Pyrrhic Victory” – a cartoon that illustrates Bitcoin’s success in shortly becoming an ETF, but that success ultimately might undermine its original vision.

With the anticipated January approval of the first spot Bitcoin exchange-traded fund (ETF) in the United States, the industry is poised to tap into a tidal wave of investment in the world’s oldest cryptocurrency.

An ETF is an investment vehicle that allows ordinary investors exposure to the price moves of bitcoin in their regular brokerage accounts.

If only 1% of assets shift into Bitcoin this will represent $360 billion (or 20% of the total size of the current crypto market), which is one of the reasons Bitcoin is up over 160% year on year and has left many other crypto assets (e.g. Ethereum up only 89%) way behind.

However, while Bitcoin might attract new users and capital into the industry, the concern is that it will not deliver on the dream of decentralization and self-custody of assets.

The danger is that it becomes a Bitcoin “brand” co-opted similar to any other ETF product from the likes of Blackrock or Vanguard.

Also, new investors will assume that they are holding the real crypto asset, but most likely it will be a synthetic Bitcoin, not the real thing, just like a dollar bill is not the same thing as gold.

For Bitcoin to succeed on its own terms, it must evolve as a technology with an ecosystem of developers building new applications on top, not just become a store of value.

The success of Bitcoin Ordinals and the likes of Lightning Network, show a potential path forward, but the ecosystem is far from the healthy ecosystems of Ethereum or Solana with their thousands of developers building new applications.