Why should we be wary of "BTC institutionalization"?

Author: Michael J. Casey, Coindesk; Compiler: Odaily Planet Daily jk

"Financial advisors just want a simple narrative."

What is the meaning of Bitcoin?

With a string of prominent financial institutions recently announcing bitcoin derivatives, the institutionalization of the largest and most important cryptocurrency is imminent. Although people in the circle are excited about the expectation of institutions entering the market (pulling the market), I see that this may change the basic attributes of Bitcoin.

Bitcoin is an alternative store of value, similar to gold, and its existence as a kind of firewall against the debasement of fiat currencies drives its price. (We could call it Michael Saylor's view.)

Is it a payment tool for those who are excluded from the financial system for various reasons? (Perhaps call it Salvador's point of view.)

Is it an activist tool, a mechanism to challenge power? (Viewpoint of the Human Rights Foundation.)

Or look at it with a more open mind, seeing it as an unstoppable recording platform where users can record all kinds of valuable content? (Taproot Wizards perspective.)

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

But if the SEC approves the recent exchange-traded fund (ETF) filings of BlackRock, WisdomTree or Invesco — admittedly, that’s a big “if” given the SEC’s past intransigence. ” — and if it backs the newly formed EDX cryptocurrency exchange from Fidelity, Charles Schwabb, Citadel, and other financial giants, then these free, open interpretations may be disregarded.

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

Inflation hedge?

Perhaps the most honest way to describe Bitcoin is as an uncorrelated asset whose price moves over time independently of other assets, providing more stability to a diversified portfolio and holding value when stocks, bonds or commodities fall.

But for financial advisors and their regular investors, that description may not be a satisfactory one. While they are well trained for diversification and hedging thinking, there is usually an event-driven narrative behind it. Example: When a recession looms and expected returns fall, the decline in the value of your variable income stock assets will be balanced by fixed income assets such as holding bonds.

This is the "inflation hedge" story usually used for Bitcoin. But it's not easy to explain. In 2022, when inflation hits the global economy, Bitcoin is in the red, defying a popular short-term understanding that prices of inflation hedges should rise as consumer price increases accelerate.

On the other hand, the argument for Bitcoin as an inflation hedge holds water from a long-term perspective. Having grown 150-fold over the past decade, Bitcoin has helped long-term holders offset the continued erosion of the U.S. dollar's purchasing power more effectively than other widely available investments.

The problem is that the financial industry wants a short-term narrative - after all, financial professionals are usually rewarded based on quarterly performance. What they want is: if Y happens to X, then Z happens to Bitcoin. But the reality is not so predictable. Still, I think Wall Street will gravitate toward Thaler's view. It needs to find some kind of story -- while many ETF investors may happily bet on Bitcoin's price rise with little concern, this heavily regulated industry cannot frame things as gambling -- and long-term store value The concept of is the easiest to accept.

The easiest way to explain it is to call it the "digital gold" story, which has a ready-made analogy, all too familiar to US investors, of an asset that can behave independently of monetary policy. (Skeptics will naturally point to the aforementioned experience of 2022, when the price of bitcoin fell and the price of gold rose as expectations of Fed rate hikes increased. Tales of strategies to deal with it all.)

Influence

**One of the importance of this story is that it will help determine the direction of policy. **If bitcoin is viewed purely as a hedge for investors, it would be in line with ongoing regulatory efforts in Washington, D.C. While bitcoin has escaped the SEC's current regulatory purview, labeling other crypto tokens as "securities" in addition to ETH would strengthen other regulatory positions that could indirectly limit bitcoin's Usage growth, though probably not affecting its price.

The most important issues concern privacy, KYC, etc. If institutions recognize bitcoin as a form of money—in addition to or instead of viewing it as an investment vehicle—then the case for allowing a greater degree of privacy is all the stronger. But if the conversation in the U.S. is now placing more emphasis on stored-value investment strategies, one would be hard-pressed to argue against stricter KYC requirements from regulators.

After all, for these investment institutions, it is a matter of course for them to abide by these rules, and they have no loss to support this kind of monitoring. (If consumer demand is as strong as some financial institutions are suggesting, they could stand to gain a lot even in the trough of the bear market.)

**This is not good news for the millions of people who want the Bitcoin protocol to be a financial tool, or who want to move money safely under oppressive regimes. **

Nor is it good news for a new generation of developers working on Bitcoin-based tokens like the Taproot Wizards project or the new BRC-20 tokens built on top of the Ordinals protocol . KYC at the exchange level hampers the global mainstream reach of these innovative projects, especially if initiatives like the Financial Action Task Force’s cryptocurrency “travel rule” find backdoor ways to indirectly force self-custodial wallets to report.

Let's take a deep breath. In the words of fans who see Bitcoin as the “honey badger of money,” when it comes down to it, “Bitcoin doesn’t care.” Regardless of what Washington or Wall Street does with its investment and token transactions, the network will continue to operate, with block after block being mined.

**Bitcoin's protocol is unstoppable. **In fact, if the ETF is approved and mainstream investment pours into Bitcoin, this will drive up the price and attract more hash power into the mining network, the idea behind the Bitcoin protocol’s cost-of-attack security — its The essence of "unstoppability" - will become stronger.

Faced with this open source unstoppable, uncensorable protocol, innovators will continue to do what they have always done: innovate. So there must be a solution to all this. New approaches will emerge that will tap into all other Bitcoin use cases without being hamstrung by Washington and Wall Street regulation.