Bitcoin ETFs are ‘orange FOMO poker chips’ that siphon on-chain funds back into TradFi

Despite promising to bring more baby boomers into Bitcoin, the United States spot Bitcoin exchange-traded funds (ETFs) could pose a greater risk to on-chain adoption and liquidity.

One of the biggest concerns with ETFs is how they could cannibalize on-chain liquidity, according to Jim Bianco, founder of macro research firm Bianco Research, who wrote in a May 19 X post:

“Pulling money off-chain into the Tradfi world in the form of an orange FOMO poker chip will not get digital assets to the promised land of a new decentralized financial system. If anything, it is getting in the way of this goal.”

The warning comes during a decisive week for the Bitcoin (BTC) price, which is trading below a crucial resistance line. Bitcoin could rally to new all-time highs if it manages to decisively break above the $67,500 mark, according to Markus Thielen, the head of research at 10x Research.

However, instead of facilitating more adoption, the ETFs seem to pull on-chain liquidity into traditional finance (TradFi), which was a long-standing concern for the macro researcher.

This is evidenced by the first quarter financial results of Coinbase, which showed that revenue stood at $1.64 billion despite retail trading volume being just half of 2021 levels. Meanwhile, institutional trading volume increased to $256 billion in Q1 from $215 billion in Q1 of 2021.

According to Bianco, this is a sign of Coinbase balancing institutional growth to offset retail trading decline:

“Above is $COIN telling us that retail still thinks on-chain is too hard, and $COIN is too limiting? They would rather own BTC in a Tradfi brokerage account? In other words, are they content with a receipt (ETF) that trades on the NYSE that they own BTC in a regulated account rather than adopting the new financial system directly?”

In any case, the findings could raise a problematic question for Bitcoin’s narrative as a decentralized alternative to the fiat fiscal system. Bianco wrote:

“If the goal is to develop a new financial system, an ETF dragging money back into the Tradfi world is not getting to that promised land.”

Moreover, the ETFs have also failed to…

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