Why Can't Bitcoin Spot ETF be Approved?

At September 2022, Bitcoin (BTC) spot ETF is still not approved.

It has been about a year since the U.S. Securities and Exchange Commission (SEC) approved its first Bitcoin futures ETF last year.

Bitcoin ETF approval means that it is legally sold on the stock exchange as a financial product through financial institutions. In other words, it means that cryptocurrency, which was relatively classified as a 'non-mainstream asset' and a 'risk asset', is recognized as an official financial asset. Therefore, many cryptocurrency communities, including numerous cryptocurrency investors, want Bitcoin ETF approval.

Prior to the spot ETF, the futures ETF was approved in October last year. At the same time as the launch of the futures ETF, many cryptocurrency investors also predicted the spot ETF would be approved soon. However, since then, ETFs with the same mechanism as spot transactions, which invest and trade in the market price, are still walking in the fog for a year.

Rumors have circulated that 'soon' and 'January or February of 2022', but Bitcoin spot ETF is still not showing up in the market at this point in September. Invesco and Van Eyck large financial institutions poured a lot of resources into the Bitcoin spot ETF approval process, but they were also unable to get approved.

Then, why doesn't SEC approve Bitcoin spot ETF? To get a hint, we need to look at the process in which certain assets are recognized for their value and are used as "currency."

# Empire Power + Limited Quantity Assets = Monetary and Financial Systems

The monetary system is complex. The birth of money required a limited number of specific assets and the state power to guarantee the value of money.

The principle has been applited to gold coins, cooper coins, and dollars.

The Roman Empire had a huge territory, and it used gold coins as a taxe of the empire. The gold coins had their own value, as a limited number of assets called gold and a huge empire called Rome supplied for it.

The cooper coins were no exception. The first emperor of China, Qin Shi Huang cast copper-made follicles, a limited-volume asset in the new empire, for use. These coins were used as currency in the framework of a huge empire. It made the Asian culture that Asian called cooper coins as the 'coins'.

The dollar has the same principle. The dollar began to take the gold standard in 1944 with the concept that $35 was linked to an ounce of gold through the Bretton Woods system. However, due to the U.S. trade deficit, the gold standard in 1971 disappeared with a short history behind it.

However, through the Kissinger Agreement in 1974, it created a connection with Saudi crude oil and maintained the power of the world's key currency as 'oil money'. The existence of the dollar has been supported by there were limited quantities of gold and oil along with the great empire of the United States.

The giant empires used their state power to create a monetary and financial system by creating a link with certain assets mined in limited quantities on Earth. Using a limited number of assets, they created their own paradigm that allows them to control their own monetary and financial system.

# "Bitcoin Standard" Emerged

Bitcoin has a strictly limited quantity. At a time when the Lehman shock hit the global economy in 2008, an 8 page white paper was born that explained the concept of a decentralized 'P2P digital currency system'. Bitcoin, which has a limited quantity of 21 million, is being mined over its halving of four years.

Bitcoin has been proving its existence value only according to the demand and use of the people amid the stigma of 'fraud' and 'fictional without value', and has recently been slowly recognized for its value with the attention of financial institutions.

The launch of financial products related to Bitcoin by financial institutions eventually follows the history of the existing 'monetary' system. It is the paradigm that controls the monetary and financial system by issuing currency that can be issued infinitely depending on a limited number of assets.

The Bitcoin standard system, which imitates the gold standard, already began the stage. The Terra foundation has begun to collect $10 billion worth of Bitcoin for reserve assets for algorithm stablecoin TerraUSD (UST), which is pegged to dollar. The UST has been failed as it lost its pegging to dollar. However the the trial to use Bitcoin as the reserve assets means emgernce of the 'Bitcoin Standard'.

The concept that stablecoin's reserve assets become Bitcoin could mean Bitcoin becomes an asset that guarantees the value of dollar following gold and oil.

There is more to note in Terra foundation's move. Terra had a severe conflict with the SEC last year. At the time, the SEC warned that it would file a lawsuit against Terra-led Mirror protocol and synthetic assets, saying they appear to be securities. However, the SEC kept silent at a time when Terra foundation invested a large amount of money to UST linked to the dollar by collecting Bitcoin as reserve assets. In fact, it can be interpreted as an implicit agreement by the largest financial regulator in the United States.

# Reasonable Reasons for Rejecting Bitcoin Spot ETF Approval.

As of the beginning of the Bitcoin standard system, approved Bitcoin spot ETF has the destructive power to shake the existing monetary system. The spot ETF, which means direct investment in Bitcoin, could be the rebellion that confuses the paradigm itself of controlling the financial system with a limited number of assets.

Financial institutions such as Goldman Sachs, JP Morgan, and Bank of America(BoA) have begun to recognize cryptocurrency, and some have announced the start of Bitcoin OTC transactions.

The claim that SEC simply reject Bitcoin spot ETF approval by claiming that Bitcoin is a 'risk asset' is illogical at a time when traditional financial institutions recognize and accept the value of Bitcoin. Rejecting Bitcoin spot ETF while approving only Bitcoin futures ETF that could have more severe price fluctuation in the name of 'investor protection', is not reasonable.

Given that many countries, including the UK, Canada have approved Bitcoin spot ETF, the financial center of the United States also sees the Bitcoin spot ETF approval is only a matter of time.

What percentage of the chances are that a new type of monetary and financial system will work after the launch of the Bitcoin spot ETF? Throughout the limited quantity of Bitcoin and gold, many investors call Bitcoin 'Digital Gold'. There is much attention towards whether the sale of complex financial products using Bitcoin will bring about a revival of the gold standard in another sense or settle a new concept of monetary system.

권승원 기자 ksw@