Old Money, New Game: Does Institutional Money Spell the End of Web3?
Sep. 18, 2023. 4 min. read.
Web3 is poised for a crypto transformation: The imminent Bitcoin ETF signals mainstream acceptance. Is it the end of a grassroots movement or a chance for a fair financial future?
Big money – smart, dumb, and everything in between – is coming to Web3. The increasingly likely prospect of a spot Bitcoin ETF is a milestone in crypto’s final acceptance by the mainstream. Adoption is coming: a word that fuels the dreams of bedroom miners who have for years waited for the wider world to catch on to crypto’s promise.
For many, adoption is something to be fervently wished for, the final ratification of crypto’s potential. For others, it spells the end of crypto’s status as an alternative asset class, a death knell for the underground financial resistance that crypto historically represented.
Bitcoin: Always an Alternative
Bitcoin’s creation was predicated on being an alternative to big money. The first block in the entire chain contains a cryptic jab at central banks: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” The most recent bull run, although powered by stimulus checks and everyone having too much time on their hands, was built on the belief that Bitcoin and cryptocurrencies can be a store of value – a trustless hedge against the rampant money printing of central banks with levers operated by shady politicos funded by corporations keen to see their share price rise. I’m not suggesting this narrative is true or false, but it certainly fed the meteoric rise in crypto asset prices in 2020 and 2021.
Fifteen years of 0% interest and quantitative easing have made everyone’s money mean less (and everyone’s ownership mean more). Crypto represented a resistance to this. Almost since its inception, crypto has been seen as a chance for the little guy to make it, for Millenials and Gen Z (who are far more likely to be invested in crypto) to overturn the Boomers’ hoarded wealth and have a chance at replicating the stable, successful accumulation of their forebears, for those operating outside the standard rails of society to hold, store, and gain wealth. To let les miserables get involved in playing the game.
What ETFs Will Do To Crypto
The Securities and Exchange Commission (SEC) former chair’s statement that a spot Bitcoin ETF is ‘inevitable’ is, to some, a cause for sadness as well as celebration. Make no mistake, a Bitcoin ETF will open the doors for institutional money to get into crypto. ETFs (exchange traded funds) are a gold standard for institutional investors. Let’s talk about the positives first.
An ETF is a regulated mutual fund, professionally managed, that pays out dividends to shareholders based on its basket of securities. Unlike mutual funds, ETFs can be listed on a stock exchange, and are freely fungible for other cash or stocks. Most crucially, ETFs are an investment instrument that would not break fiduciary responsibility for pension funds, hedge funds, public businesses, or any other large institution who wants to hold crypto on their balance sheet and be exposed to crypto’s upside.
Upsides could be enormous if, as expected upon ETF ratification, institutions begin piling into crypto, as a method of diversifying their massive portfolios. The ‘$15 Trillion earthquake’ has the potential to send crypto not just to the moon, but to Oort Cloud. What about this is sad at all? Won’t everyone benefit? Well, yes, those who hold crypto will financially benefit – a lot.
A Requiem For Web3
The sadness is perhaps more philosophical, less practical. They worry that on the grandest scale, the cat will be out of the bag. Old money – banks, institutions, pension funds, Wall Street – these will become the primary drivers of the crypto market once crypto ETFs go live. The fun underground culture of Discord announcement parties, acid-mediated 125× Binance longs, Pepe-meme punts on shitcoins, and community-led price action with groundswell social campaigning will be completely swamped by the ticker tape tapestry of Bloomberg-reading MBA suits pumping tsunamis of money around the market or letting an algorithm HFT for them. Crypto will no longer be an alternative asset class, but just an asset class: regulated, controlled, and milled by the ancient financial machine that plunders all our tomorrows.
A New Financial System For Everyone
The hope, of course, is that crypto actually presents the opportunity for a fundamental change to the old systems. Ethereum (itself the subject of an ETF application) has, through its programmable smart contracts, the potential to act as an alternative financial substrate – one that is decentralised, trustless, and censorship resistant. One that levels the playing field and lets everyone ‘play up, play up, and play the game.’ It won’t just be Old Money buying into these assets, but these assets will form a new foundation on which the financial world can thrive – one that is permissionless and (at least nominally) fair, governed by smart contracts and regulated by all. Old Money might be entering the new game, but at least this time everyone gets a chance to join in.