What started off as a hot topic amongst traders and speculators has now made its way to the blockchain innovators. Vitalik weighed in on the ETF discussion, sharing his thoughts about its relevance to the current state of cryptocurrency adoption:
I think there’s too much emphasis on BTC/ETH/whatever ETFs, and not enough emphasis on making it easier for people to buy $5 to $100 in cryptocurrency via cards at corner stores. The former is better for pumping price, but the latter is much better for actual adoption.
— Vitalik Non-giver of Ether (@VitalikButerin) July 29, 2018
Price vs. Adoption
Vitalik’s argument is reflective of a greater issue that is beginning to split the crypto community: price vs. adoption.
It’s no surprise that the reason many people have entered into the crypto space this year because of their aspirations to become rich off of investing in cryptocurrencies. For a majority of these new entrants, there is little to no effort put into learning about the technology and its potential to disrupt our global financial and economic systems through decentralization.
For the rest, there is a strong curiosity to learn about the technology and participate in the ecosystem as developers, managers, marketers, and more.
Too much focus on price ultimately leads people to forget about the value of the technology, and treat all projects as just another opportunity to make money from the continuous pump and dump cycles. Furthermore, from an investment standpoint, lack of technical knowledge can make investing in cryptocurrencies much riskier, as you disregard the actual utility of each token and ignore the possibility that a coin you invest in might be one of the hundreds that will eventually see their value drop to zero.
Within Vitalik’s Tweet thread, an interesting discussion was conducted about the current barriers to adoption, and what role ETFs may or may not play in this journey.
At one point, a user mentioned that:
“BTC and ETH are polymorphic, meaning they function BOTH as investments and a medium of exchange/commodity. ETFs simplify the INVESTMENT aspect, while cards/payment solutions would simplify the medium of exchange use case. BOTH are important…”
To which Vitalik responded:
“Agree, though I personally think the current level of adoption is imbalanced, ie. there’s relatively speaking too much investment and not enough usage.”
Another user chimed in, stating that:
“This is mildly put, given that there is almost no actual usage and massive irrational obsession with holding. The biggest problem with fiat money is hoarding at the expense of circulation. If crypto does not solve this, it will fade away.”
The points raised here point to a bigger issue about the responsibility of coin holders to create the value they wish to see reflected in price of their tokens and the crypto space as a whole.
Exposing Bitcoin and other cryptocurrencies to institutional investors via ETFs is a great way to pump prices in the short term, but so is actually spending cryptocurrencies on a daily basis. Both avenues will lead to increase in trading volume that is necessary for coin prices to rise, yet only the medium of exchange route will lead us to experiencing longer stretches in a bull market, while ETFs may put us on a dangerous course to more pump and dumps and market manipulation, as billions of dollars will now be introduced into the market purely for speculative investing.
To a certain extent, coin holders have a responsibility to spend their coins on everyday goods and services (or in the case of utility tokens, to spend them within the Blockchains and Dapps that they originate from). Likewise, companies must provide the tools to make it easier for people to spend their coins with the same ease that they can currently spend fiat money.
Regarding the issue of card payments, a user responded to Vitalik, stating that:
“This was attempted 2013-2015 but the market wasn’t there and regulatory fears prevented companies issuing the cards from getting bank accounts to collect the fiat. There were a few companies who where able to get cards out. Perhaps now is better timing… “
To this, Vitalik responded:
“Regulatory fears prevented ETFs too. But there’s much more lobbying being done at least so far to enable one than the other….”
What Vitalik points out is in fact true, as we can see from the following chart tweeted out by @cryptomanran there are several institutions lobbying to get ETF approval this year:
By comparison, only a handful of companies like Monaco and Bitpay are succeeding in enabling users to purchase items with cryptocurrency funded debit cards.
While the markets react to the circulating rumors about ETFs, Vitalik and many early innovators in the crypto space share their concerns about what seems to be a shift in priorities from achieving true adoption to simply getting rich off of the efforts of others. These are clearly not mutually exclusive goals, as coins must have high demand (either through investments or transactions from spending) in order to increase in price. Ultimately, institutional investors may give us the demand we need to make prices surge, but only through millions of people spending cryptocurrencies on a daily basis can we hope to sustain this demand and not fall victim to more speculative boom and bust cycles.