Is an Ethereum ETF Good for Bitcoin?
The news that the Securities and Exchange Commission (SEC) approved an Ethereum ETF shocked the world. It surprised me and many others (and most in the Bitcoin community, who fully expected the SEC to reject the Ethereum ETF application).
Ultimately, it comes down to a core 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 and away from other assets like stocks and bonds. But I think they are more like substitutes. Cryptocurrency attention is fixed, and if some of it flows to Ethereum, it will be at the expense of investment in Bitcoin.
The approval adds a layer of legitimacy to Ethereum, but I think that legitimacy is unnecessary given Ethereum’s centralization: the decision-making power of the Ethereum Foundation, the history of poor protocol management (exemplified by previous hard forks), and the huge influence of its founders. Given Ethereum’s culture of experimentation, it is okay to experiment with new technologies on Ethereum and eventually transfer those technologies to Bitcoin. But such experimentation alone does not make Ethereum an investable asset.
This whole episode shows that the gatekeepers have failed. All gatekeepers – such as securities regulators, central banks or investment bankers – face the same problems of bounded rationality, political influence and private rent extraction that affect any central actor. The antidote is free and open competition and letting the market decide.
So while many Bitcoin users cheered the approval of the Bitcoin ETF in January, it would have been a mistake in principle to do so, as it would only glorify the role of government gatekeepers who happened to vote in favor. The Ethereum ETF approval shows that this is a difficult clue to rely on.
