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Why Bitcoin ETFs Will Bring the Bitcoin Price to Zero

Bitcoin ETF Will Send The Price To Zero

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Two key points that should be made off the bat and that is is a supporter of both precious metals and cryptocurrencies, namely Bitcoin. Secondly, the information provided in this article should not be considered investment advice. However, just because someone can be a cheerleader for an asset class, doesn’t mean a prudent investor should willingly overlook the substantial risks it could pose.

Crypto enthusiasts for years have championed and lobbied for the creation of a spot Bitcoin ETF, which tracks the price of the currency. On January 10, 2024, they finally got their wish as the Securities and Exchange Commission (SEC) formally approved Bitcoin ETFs to begin public trading on exchanges such as NYSE.

Within two months of the approval, Bitcoin price reached new all-time highs. So shouldn’t this be a time of jubilation and excitement for both the crypto community and Wall Street? Not so fast, because in this article we will discuss why the “safe” Bitcoin ETFs will bring the Bitcoin price to zero.

How safe are Bitcoin ETFs?

Bitcoin trading 24x7 365
non-ETF Bitcoin trading 24x7x365

Bitcoin’s lack of accessibility to mainstream investor portfolios via an ETF has always been the argument used by its proponents as the major obstacle to widespread adoption throughout the general population. Issues surrounding the self-custody of Bitcoin keys and largely unregulated exchanges have kept most hedge funds, pension funds, and traditional money managers far away from the asset class over the years.

In fact, before the approval of a spot Bitcoin ETF, many asset managers could not make allocations of the token into their client portfolios due to a combination of legal concerns, suitability issues, or reputation harm.

The goal of the ETF launch was to bring regulation and governance to the once Wild West of Bitcoin trading, however, what was the cure for one problem may have created a trojan horse for the entire crypto industry.

Bitcoin ETFs Trading Window Conflict of Interest

One of the major benefits of cryptocurrency is the ability to trade the token 24×7 365 days a year, as the decentralized nature of the tokens is not beholden to a particular managing entity such as a traditional stock exchange or regulatory control.

While historically this has been a positive attribute of Bitcoin, the centralized and restricted nature of public ETF trading hours puts the free-flowing unrestricted trading model at direct odds with each other. 

Traditional stocks, bonds, and equities typically begin and end their trading days at the same time. Even while orders pile up in after hours and over the weekend, in general, all investors are subject to the same blackout periods so no particular group has a substantial trade-window advantage over the other.

Why Bitcoin ETFs Could Crash the Bitcoin Price to Zero

Companies that manage Bitcoin ETF products are responsible for both the buying and selling of actual Bitcoin in their funds. At the time of this writing, there are no Bitcoin derivatives or similar products that would allow a company to make a play against non-real Bitcoin holdings. In this case, it is only during normal trading hours that these ETF managers go out into the marketplace to book Bitcoin orders on their client’s behalf.

While this may not sound like a big deal, consider the fact that during non-trading hours, if you are an investor that holds Bitcoin outside of an ETF, such as self-custody or on a third-party crypto exchange, you can execute orders and realize gains/losses at any time.

This effectively means that holders of the Bitcoin ETFs are frozen out of the Bitcoin market for periods, while traditional Bitcoin holders can positively or negatively affect price actions. 

In other words, holders of traditional Bitcoin have an inherited preferential right to liquidity. If there was a sudden price crash during non-standard trading hours then only the holders of traditional Bitcoin could sell, while the ETF holders would be restricted until the next trading day.

Bitcoin ETF Crash Example

Let’s say the price of Bitcoin on a random Friday in the future reached $100,000. Then the stock market closed for the day, and on Saturday there was a major geopolitical event such as a war or a terrorist attack. At this time the price dropped fifty percent to $50,000 and remained at that level until the following Monday morning at the market open.

While many of the Bitcoin ETF products could have piled up massive amounts of Sell Orders from their customers in their backlog, none of those orders would have been executed until Monday morning, thus leaving their investors with the potential for huge losses to their ETF portfolios once they are able to sell.

Bitcoin ETF Price Crash Accelerates

Once normal trading hours begin and investor panic to exit positions accelerates, the ETFs will sell more Bitcoin than what was already sold by traditional Bitcoin holders over the weekend, thus, sending the price spiraling downwards. 

To make matters worse, the likelihood of an arms race between ETF holders and regular Bitcoin investors could cause a race to the bottom, as each side competes to mitigate their losses.

This head-to-head dynamic establishes a new risk-premium and creates a scenario in which volatility in the Bitcoin price could increase dramatically on Mondays, Fridays, and bank holidays, as ETF holders look to jockey for more secure positioning going into trading blackout periods.

Another possible outcome is that new Bitcoin ETF insurance products emerge in the future just to account for the delta in risks associated with crypto products that trade during normal and non-standard hours.

How to Prevent a Bitcoin ETF Price Crash

There is only one immediate solution to remediating the risk of a Bitcoin ETF price crash and that is to allow Bitcoin ETFs, specifically, to trade 24×7 like normal Bitcoin. This would effectively eliminate the inherited trading window risk as it stands today.

Keep in mind that the companies that run the ETFs themselves do not inherit the same risk as their customers. ETF managers typically make money from the fees they receive from buying and selling Bitcoin and have no direct correlation to the price of Bitcoin itself, other than a potential increase/decrease in trading volume.

Bitcoin ETFs Lead to a New Crypto Winter

Bitcoin ETFs were slated to be the answer to a market that was seen to be rife with bad actors and a lack of regulatory oversight, and in many ways, the new spot ETFs have established the first guidelines and regulatory framework to allow the general population more convenient access to Bitcoin in their investment portfolios.

However, in a sense of irony, the “safety” that was touted by crypto bulls and Wall Street of the Bitcoin ETFs, are in fact, not safe at all. It could be argued that the ETFs themselves will ultimately lead to a new crypto winter, as the new ETF investors will likely want to stay clear of Bitcoin altogether after getting burned as an early ETF adopter.

While we certainly hope this doesn’t play out this way, it would be foolish not to see that there is a high probability this could occur at any time. Besides as investors and preppers, we don’t hope, we plan, and we pray.

The name Rugged Man was born out of a bet gone horribly wrong, however, the name stuck. Technology nerd by day, and survival enthusiast by night, he is committed to helping thousands of everyday people become more educated about topics such as Prepping, Survival, and Bug Out Strategies.

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