Peter Schiff, Arthur Hayes, Raoul Pal Speak on Bitcoin ETFs Risks

As Bitcoin exchange-traded funds (ETFs) continue to garner attention, they also pose unprecedented risks to the cryptocurrency market. 

These financial instruments, designed to attract institutional investors, could potentially destabilize the entire industry due to several inherent vulnerabilities.

The Biggest Risks in the Current Cycle

Arthur Hayes, co-founder of BitMEX, emphasized the dangers associated with centralized entities managing large volumes of crypto assets. He pointed out that the main risk in previous cycles stemmed from centralized counterparties facing credit issues. 

“We love decentralization but then we want to make money so we go do centralized stuff and we bid up the centralized stuff and totally blow up,” Hayes remarked. 

This cycle could witness a similar pattern with ETF fund managers and custodians accumulating substantial amounts of Bitcoin.

By consolidating crypto in the hands of a few custodians, significant risks emerge. If these custodians are compromised, for instance, the consequences could be catastrophic.

Read more: 10 Best Crypto Desktop Wallets for 2024

Hayes highlighted a concerning scenario where banks, driven by regulatory requirements, custody massive amounts of crypto with minimal security measures. Unaccustomed to handling digital assets, these institutions might overlook critical cybersecurity practices. 

“If I’m going to hack crypto, I’m going after one of these US custodians whose internet security is just like an afterthought. They have no clue what they’re doing because never have they had custody of an asset. If they lose it, they don’t get to call up the Treasury or the Fed and get a bailout,” Hayes warned. 

Therefore, the potential for a significant hack looms large, with the possibility of losing billions in cryptocurrencies.

Bitcoin ETFs Historical Holdings
Bitcoin ETFs Historical Holdings. Source: CryptoQuant

Peter Schiff, Chief Global Economist at Euro Pacific, echoed similar concerns. He argued that Bitcoin ETFs could lead to market instability.

Unlike spot buyers who intend to hold their Bitcoin long-term, ETF investors might trigger massive sell-offs, exacerbating market volatility.

“Bitcoin pumpers are counting on institutional ETF buying to drive higher prices. But this makes the entire market even more unstable, as all ETF buyers are future sellers,” Schiff noted

Meanwhile, Raoul Pal, co-founder of Real Vision, pointed to the concentration risk within the crypto derivatives market. He observed that a significant portion of the market is handled by a single entity, Deribit. 

“90% of the entire option market is Deribit… There’s a risk there because the amount of people who use that one counterparty,” Pal explained. 

The lack of diversification in the derivatives market could lead to systemic risks, particularly if Deribit faces issues. Pal also stressed the importance of recognizing these risks without assuming imminent failure.

Read more: Identifying & Exploring Risk on DeFi Lending Protocols

The advent of Bitcoin ETFs introduces new risk layers to the cryptocurrency market. Centralized custody, potential cybersecurity threats, and market concentration all contribute to a precarious situation. Therefore, these risks must be carefully managed to prevent significant financial disruptions. 

The post Peter Schiff, Arthur Hayes, Raoul Pal Speak on Bitcoin ETFs Risks appeared first on BeInCrypto.

How useful was this post?

Click on a star to rate it!

Average rating 0 / 5. Vote count: 0

No votes so far! Be the first to rate this post.

Latest posts

post-thumbnail
Phantom Wallet Announces Support For SUI Network 
The post Phantom Wallet Announces Support For SUI Network  appeared first on Coinpedia Fintech News...
READ MORE
post-thumbnail
This MEME Coin Set For 30% Rally, In-depth Analysis
The post This MEME Coin Set For 30% Rally, In-depth Analysis appeared first on Coinpedia Fintech New...
READ MORE
post-thumbnail
Semler Scientific Bitcoin Acquisition Surges Amid Crypto Market Boom
The post Semler Scientific Bitcoin Acquisition Surges Amid Crypto Market Boom appeared first on Coin...
READ MORE
post-thumbnail
Worksport Bets Big on Bitcoin and XRP – Here’s Why
The post Worksport Bets Big on Bitcoin and XRP – Here’s Why appeared first on Coinpedia Fintech ...
READ MORE
post-thumbnail
Solana (SOL) Set to Hit New High, 82.2% Traders Hold Long Positions
The post Solana (SOL) Set to Hit New High, 82.2% Traders Hold Long Positions appeared first on Coinp...
READ MORE
post-thumbnail
Marathon Digital Bitcoin Holdings Surge with $850M Note Offering; MARA Stock Soars 59%
The post Marathon Digital Bitcoin Holdings Surge with $850M Note Offering; MARA Stock Soars 59% appe...
READ MORE
Read more posts