The Securities and Exchange Commission (SEC) recently surprised many by approving an Ethereum ETF, a move that was unexpected by many, especially within the Bitcoin community. This development raises a crucial economic question: Is Bitcoin a substitute or a complement to Ethereum?
Complementary or Substitute?
Some believe that Bitcoin and Ethereum are complementary. They argue that investment in Ethereum could attract new investments into Bitcoin, pulling capital away from traditional assets like stocks and bonds. However, others, including myself, view Bitcoin and Ethereum as substitutes. The finite attention and investment capacity directed towards cryptocurrencies suggest that an increase in Ethereum investment may detract from Bitcoin investment.
Legitimacy and Centralization Concerns
The approval of the Ethereum ETF lends a legitimacy to Ethereum that some argue is not warranted due to its perceived centralization. The Ethereum Foundation, along with its founder’s significant influence and the protocol’s history of hard forks, showcases governance challenges. While Ethereum is a hub for technological experimentation, its value as an investable asset remains debatable. Many in the Bitcoin community believe that technological advancements tested on Ethereum should eventually be transitioned to Bitcoin for stability and longevity.
The Issue of Gatekeeping
This situation underscores the broader issue of gatekeeping in financial regulation. Gatekeepers like securities regulators, central banks, and investment bankers are subject to limitations such as bounded rationality, political influence, and private rent-seeking behaviors. The best solution, therefore, is to promote free and open competition, allowing the market to make decisions rather than relying on centralized gatekeepers.
Regulatory Shifts and Market Dynamics
Although Bitcoiner’s celebrated the approval of the Bitcoin ETF in January, this recent approval of the Ethereum ETF serves as a reminder of the capricious nature of regulatory decisions. Relying on government gatekeepers can be precarious, as these entities can easily shift their support, affecting market dynamics unpredictably.
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