Wednesday, January 24, 2024

Do bitcoin ETFs conflict with bitcoin's original ethos?

Some folks are suggesting that a bitcoin ETF is absurd because it doesn't fit with Bitcoin's original ethos. On the contrary, I think it's a nice snug fit.

It would be a misunderstanding of bitcoin's history to assume that it was the idealism of cypherpunk-ism that gave birth to the Bitcoin movement. Bitcoin would never have got off the ground without a massive amount of old fashioned greed. In bitcoin-speak, this greed usually goes by the term number-go-up, and it was crucial from the start. The new bitcoin ETFs are certainly not cypherpunk, but they are very much in the founding spirit of number-go-up.

One of the main goals of the 1990s cypherpunks, if you recall, was to create anonymous digital cash. And while bitcoin certainly has some roots in cypherpunk ideals, the ethos of number-go-up clashes with the dream of digital cash: after all, an asset with a volatile price makes for an awful medium of exchange. Before long, number-go-up had drowned out the cypherpunks.

I recall walking into Montreal's Bitcoin Embassy in 2014, which was located on the busy intersection of St-Laurent and Prince-Arthur. I had already been researching and writing about bitcoin for a few years, but decided to play it dumb to see how the folks at the Embassy would approach the task of teaching a newbie about bitcoin. Instead of preaching to me about how to make a bitcoin payment from my own self-custody wallet, the ambassador walked me over to a large screen showing bitcoin's price. "Look, it's rising," he said in awe.

That, in short, sums up bitcoinism. Like 1980s televangelism with its gold-plated cowboy boots, mansions, private jets, and a dose of God on the side, bitcoin is all about the price chart with a small helping of cypherpunk ideology.

Number-go-up has always required getting ever more people into the game. Bitcoin, after all, is itself sterile. Unlike a publicly-traded business, it doesn't generate a stream of improving profits, so the only way for its price to keep rising is to recruit more players, much like a pyramid or a chain letter. From the early days, getting access to traditional financial and banking infrastructure has been crucial to making this recruitment process go as smoothly as possible.

Docking bitcoin to the existing financial edifice began in 2010 with the first bitcoin exchanges, which hooked into the crucial global bank wire systems like SWIFT, as well as local wire systems like the Federal Reserve's Fedwire system and Europe's SEPA system. These integrations were key to pumping the initial rounds of money into the game, and pushing the number above $1, and then $10, $100, and $1000.

Later on, bridges to the Visa/MasterCard debit card and credit card networks brought an even tighter fusion between bitcoin and the regular world, more inflows, and more number-go-up. The addition of bitcoin purchases to mobile payment apps like PayPal and Cash App came after. Viewed in this context, ETFs are nothing new, really; they only represent the next coupling between the two worlds.

As for regular old finance, it isn't complaining. The task of players like Visa is to generate profits  they want nothing more than to add new products like bitcoin to the list of products they already connect. The curious result is that no chain-letter style product has ever gone as mainstream as bitcoin has.

Now that bitcoin ETFs exist, number-go-up demands even more linkages to traditional finance and banking. What's next? One possibility: expect the bitcoin community to lobby for federally-chartered banks to be allowed to offer bitcoin products alongside savings deposits and retirement accounts. Banks offering bitcoin to their retail client base may seem inconsistent with bitcoin's more cypherpunk-y dreams of replacing the banking system, but on the contrary: its hard to imagine a more fantastic recruitment tool for number-go-up.


  1. The problem is that number don't go up when Bitcoin and crypto can't do wash sales, money laundering and terrorism financing. Cash create is the end of Bitcoin IMO. Every step they take towards the legit financial sysem is a blow to being able to maintain the illusion of number go up. Draft Kings will end up being alot more fun.

  2. Hi John,

    I'm a former Bitcoin zealot. I was struggling to find objective and sound criticisms against Bitcoin until I found your blog posts. It's obvious that your criticisms are sound, fair and based on data. THANKS A LOT

    However, I would like to request you to please share all your posts in your RSS feed in blogspot; because I've just found that you've published many other good writings but they are scattered around Internet.

    Thanks again

    1. Glad to hear my writing has had some effect!

      Alas, my stuff is scattered around.

      In addition to this blog, here's where most of it is. Hope that helps:

      1. I wrote 12 articles for Breakermag in 2018-19, which is no longer on the internet:
      - The first is here...
      - Ten more are here...
      - Haven't been able to locate this one...

      2. I've written a few dozen articles for CoinDesk, all here:
      3. A bunch of stuff for AIER, all here:
      4. Finally, here are my articles for Bullionstar from 2017-2020:

  3. All these so called criticisms can't explain the complete lack of empirical validation and it's been 15 years now. Another few years and even the poor Madoff ponzi example won't remain an excuse.

    1. You're going to have to be more specific. What so-called criticisms are you addressing?

    2. Many critics including yourself make the point that 'number go up' is the primary driver for demand of crypto tokens. But if that were the case, why is it that Bitcoin continues to outperform other crypto tokens across multiple cycles despite diminishing returns? Except for the odd case of Dogecoin (which to is correcting down from the excesses of last cycle), no other coin has outperformed Bitcoin over multiple crypto cycles. If indeed, Bitcoin be thought of as just one among thousands of coins that retail chase for 'number go up', what explains its odd resilience against other coins? This is an important point because the scarcity of Bitcoin is often countered by arguing that there is no real scarcity as any number of crypto assets / bitcoin forks can be spun up. But then empirical evidence continues to suggest that over a long period, Bitcoin continues to be treated by the market differently to the other multitude of forks and coins. How does one explain that while still being skeptical of Bitcoin's 21 million scarcity?

    3. "If indeed, Bitcoin be thought of as just one among thousands of coins that retail chase for 'number go up', what explains its odd resilience against other coins?"

      I asked this question a few years back, except instead of bitcoin I had dogecoin in its place. Why did Dogecoin take off but Feathercoin didn't? My answer:

      "How does the market settle on two or three? I suspect it probably comes down to luck. Finicky things like mascots, logos, influencers, and catchy names probably play a role too. In Bitcoin's case, being first is a huge benefit. And so most HFCLs sort of putter around like Feathercoin. They don't die. But they don't expand either."


    4. I would think luck is entirely the factor between one and another random altcoin. But it doesn't suffice to explain Bitcoin as its been the first and the most discussed and has remained so. So in this case, one must think that being the first and hence capturing the position and hashrate has a lot to do with its resilience and not just luck. Think of it this way - how probable is it that just 'luck' favoured number 1 to stay number 1? I mean if being first did not matter, we could have ended up with number 67 from 2014 (whatever it be) being number 1 now. But it isn't and 1 has remained 1.

    5. "Think of it this way - how probable is it that just 'luck' favoured number 1 to stay number 1?"

      Did you not read my comment? I said: "In Bitcoin's case, being first is a huge benefit."

    6. Being the most resilient in a group is easy to confuse for absolute resilience. Bitcoin can be expected to be the last coin standing when the whole ecosystem finally unfolds. This may be disappointing to believers in absolute resilience. :-)

      (It could be that the pressure of having to buy mining resources with real money triggers the flippening, and the last coin standing is the #1 proof of stake coin, before itself unfolding.)

    7. That's exactly why I am well allocated to bitcoin as well as the #1 PoS coin.

  4. Bitcoin Embassy is a funny concept. Were the proprietors ex-Raelians? ;-)