Norman Wooding from SCRYPT Comments on Differences Between Direct Ownership of Bitcoin (BTC) and Institutional Bitcoin ETFs

Following the approval of multiple spot Bitcoin ETFs and resulting rising Bitcoin prices, Norman Wooding, CEO of SCRYPT, has shared his perspective on the increased institutional demand for Bitcoin.

Norman Wooding from SCRYPT, a Swiss-licensed company offering a range of crypto asset services, has commented on key Bitcoin (BTC) and crypto industry developments and how they could impact the ecosystem as we move further into 2024.

Our conversation with Norman is shared below. 

Crowdfund Insider: What immediate effects did the approval of the spot Bitcoin ETFs have on institutional investors, and what are the anticipated long-term ramifications?

Norman Wooding: The approval of several spot Bitcoin ETFs by the SEC catalyzed an immediate rally in the crypto market, accompanied by a surge in demand from institutional investors. The advent of Exchange Traded Funds (ETFs) in the cryptocurrency space is a pivotal moment, bridging traditional investment mechanisms with the burgeoning world of crypto. This not only lends a new layer of legitimacy to cryptocurrencies but also mitigates some inherent risks, facilitating easier integration into existing investment portfolios.

Currently, the market hosts 11 spot Bitcoin ETFs from notable funds, including Blackrock. These ETFs present a regulated, familiar framework for institutional investors to engage with Bitcoin, sidestepping the operational and security challenges of direct cryptocurrency ownership. Moreover, spot Bitcoin ETFs streamline the rigorous due diligence process, making them an attractive option for institutional portfolios. This ease of access is expected to encourage more institutions to formulate and implement Bitcoin investment strategies centered around these ETFs.

In the short span since their introduction, these ETFs have attracted billions of dollars in net inflows, fundamentally altering the market dynamics of Bitcoin. They have established a new demand anchor, heralding a market cycle distinct from any we have seen before.

The long-term implications for the institutional investment landscape are profound. With the introduction of spot Bitcoin ETFs, we’ve opened a new chapter in financial innovation that cannot be reversed. The integration of traditional financial structures with digital assets marks a significant shift, promising to redefine investment strategies and market engagement for years to come.

Long-term ramifications for institutions, the genie is out of the bottle.

In the short span since their introduction, these ETFs have attracted billions of dollars in net inflows, fundamentally altering the market dynamics of Bitcoin Click to Tweet

Crowdfund Insider: What distinguishes direct ownership of Bitcoin from Bitcoin ETFs, and do you foresee lasting consequences for the prevalence of direct Bitcoin ownership due to the rise of Bitcoin ETFs?

Norman Wooding: At their core, Bitcoin ETFs serve as a means to invest in Bitcoin within the comfort and perceived safety of a regulated and structured financial product. This is particularly appealing to a segment of the market seeking exposure to Bitcoin’s potential without delving into the intricacies of cryptocurrencies (technology, security, understanding, management) – like securing private keys or engaging with exchange venues directly.

The benefits of ETFs, such as risk diversification, regulatory protection, and the removal of direct management responsibilities, align with the needs of those less acquainted or comfortable with the nuances of the crypto world.

I feel this approach subtly shifts away from the foundational principles of cryptocurrency, and principles like autonomy, reduced reliance on intermediaries, and direct control over one’s assets. Bitcoin, by design, encourages a decentralized and direct ownership model that empowers individuals without necessitating traditional financial intermediaries.

The trend towards ETFs, while fostering broader adoption and providing a sense of security, inadvertently introduces layers of mediation and fees, diverging from the original intent of cryptocurrencies. Concisely put, Bitcoin ETFs are attractive to some, but personally, I feel they are an antiquated approach that distances us from the benefits of direct Bitcoin ownership.

I perceive the move towards ETFs as a temporary alignment, primarily driven by the current regulatory and market landscapes, rather than a definitive evolution of Bitcoin investment strategies. The intrinsic value and appeal of direct Bitcoin ownership, such as control over one’s assets and the freedom from intermediary oversight, remain compelling arguments against the complete substitution of direct ownership with ETF-based investments.

In essence, while Bitcoin ETFs undeniably play a critical role in integrating cryptocurrencies into mainstream financial systems, the principle of direct ownership stands as a testament to the underlying philosophy of Bitcoin. The long-term landscape for direct Bitcoin ownership, therefore, may be influenced but not overshadowed by the rise of Bitcoin ETFs. It’s a balancing act between embracing innovation and preserving the foundational tenets of cryptocurrency.

Bitcoin ETFs undeniably play a critical role in integrating cryptocurrencies into mainstream financial systems Click to Tweet

Crowdfund Insider: How will the upcoming Bitcoin halving affect the broader market?

Norman Wooding: I am overall bullish – from a price perspective, I will always be bullish on any mechanism, policy, or action which limits, diminishes, or cuts supply – even so on such an event which not only cuts supply, but has a positive impact on demand.

In essence, the Bitcoin halving will reduce the supply of bitcoin entering the market (blocks will be reduced from 6.25 to 3.125 BTC). Scarcity creates value. Historically, ‘halvings’ have acted as a bullish signal, contributing to upward price trends. The broader market often sees this as a positive signal, potentially leading to increased interest and investment in BTC, and the wider market from Ethereum to altcoins.

For institutions: while positive price movement can attract institutional attention, they are more focused on regulatory clarity, market infrastructure, and the maturity of custody and risk management solutions. In terms of price movement, while some institutions like the volatility as they engage market-neutral strategies, most don’t.

The combination of these factors, alongside the observed trends of declining Bitcoin available for trading and an increase in long-term holdings, suggests a market positioned for a bullish run, supported by both new institutional pathways for Bitcoin exposure and fundamental supply constraints.

Crowdfund Insider: What motivates institutions to pursue self-custody, and what criteria are they seeking to facilitate their adoption of Bitcoin self-custody?

Norman Wooding: The primary motivators for self-custody are holding assets on balance sheet, security, control and access. The protection of assets is a major concern for financial institutions, and self-custody is arguable amongst the most secure ways to achieve this.

However, this does involve major investment in hardware, expertise, and resources while taking on operational risk. Coupled by the lack of knowledge, learning curve, and expertise required – it is no wonder that many firms work with third party solutions to manage these requirements.

Crowdfund Insider: As we approach the various MiCA provisions coming into force in 2024, what has been the impact on market participants as they look to comply?

Norman Wooding: What we’ve been hearing from institutional investors for a long time now is that they are seeking stability and clear legal frameworks to mitigate risks associated with investment in cryptocurrencies. While this has not yet materialised in the US, it is already a reality in the EU and particularly in Switzerland.

What we’ve been hearing from institutional investors for a long time now is that they are seeking stability and clear legal frameworks to mitigate risks associated with investment in cryptocurrencies Click to Tweet

Crypto commentators have lauded the fact that the EU is providing clarity through the Markets in Crypto-Assets (MICA) framework. The aim of the regulations is to protect consumers and investors, mitigate risks to financial stability, and prevent money laundering. By comparison, the approach taken in the US is combative and based largely on litigation, which is a less useful, expensive, and more time-consuming approach.

The MiCA framework aims to provide regulatory clarity and a standardized approach to cryptocurrency across the EU. This will benefit market participants by reducing uncertainty and fostering a safer investment environment.

While MiCA offers clarity and is generally seen as a positive step towards mainstream adoption, it also introduces compliance costs and operational challenges for crypto businesses. The impact varies among participants, with smaller entities possibly facing more significant hurdles due to resource constraints.

What we’ve seen so far is that crypto companies are setting up in the most advantageous jurisdictions in anticipation of legislative changes. This is likely to continue, with jurisdictions that provide stability, clarity and an understanding of the potential crypto brings, likely finding themselves as headquarters for global crypto operations.

While ETFs provide regulatory familiarity, they compromise decentralization. In light of increasing regulatory certainty for the crypto industry, there are a growing suite of firms offering innovative solutions that bridge the gap between traditional finance and the rapidly maturing crypto space.

As the Bitcoin halving grows nearer, we can expect institutional investors to be paying extremely close attention to the crypto markets. With the increased institutional demand for BTC, as seen through the inflows in BTC ETFs, the upcoming halving could differ in its impacts on global crypto markets. That said, previous halvings suggest that this upcoming milestone provides strong rationale for continued bullishness on institutional BTC adoption.



Sponsored Links by DQ Promote

 

 

 
Send this to a friend