Mainstreaming has its costs. The total commodification of the cryptocurrency market may present some more profit-taking opportunities, but there is a price to pay. Our vulnerable financial freedom may be at stake — again.
Let’s face it — we live in one centralized world.
We do most of our shopping in giant malls or on Amazon. We hang out in Starbucks, we search for information almost exclusively on Google, and we spend most of our time online on social media platforms like Twitter, Facebook, and Instagram.
Contrary to what many cryptocurrency advocates believe, centralization is not just a consequence of the industrial or technological revolution. We are to blame — though, “blame” may not be the appropriate word to use in this context.
Centralization is in our very nature.
Since the dawn of civilization, we have delegated our responsibilities to a leader. From the moment we are born, we gravitate around our parents, the cool boy or girl at school, or around our charismatic friends. It was only natural for the blockchain and the cryptocurrency industry to follow the same path.
At Bitcoin’s inception, we gravitated around Satoshi Nakamoto and hung out on a single forum that had all the information we could possibly need. After Nakamoto went rogue, we picked different leaders and delegated all our responsibilities to a group of developers, to mining pools, and to so-called social media influencers and personalities.
We’ve even taken the next step and, now, we are willing to forfeit our Satoshi-given right of financial independence to a few cryptocurrency exchanges, hot wallets, and other lucrative third parties — just for the sake of convenience.
Unfortunately, this is just the beginning. Now, we are also willing to fully commodify the cryptocurrency space and include it into an already rigged, greed-mongering system — just for the sake of profit.
Commodifying The Cryptocurrency Market
Recently, Crypto Twitter and the wider cryptocurrency media rejoiced as a ‘fintech startup’ announced the completion of a private initial funding round. Swiss-based Amun AG raised $4 million in its attempt to make cryptocurrency investments ‘safe, easy, and regulated.’
Excited to share what we've been up to @AmunAG: safe, easy, regulated ETPs to invest in an index of cryptos, Bitcoin, Ethereum, and (soon) Ripple.
This is in addition to our efforts to tokenize our own ETFs as well as offer issuers a platform to do the same. More details on TC. https://t.co/lWV9ysBP2f
— Hany Rashwan (@hany) March 11, 2019
The company’s first Exchange Traded Product (ETP) — a financial derivative tradeable on securities exchanges — is an index basket consisting of five major digital assets: Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Litecoin (LTC), and Bitcoin Cash (BCH). The distribution of these assets in the HODL index is uneven and based on capitalization, with BTC weighing the most (almost 50 percent), followed by XRP (27 percent), ETH (16 percent), LTC (four percent), and BCH (almost three percent).
Amun’s ultimate goal is to create ETPs for all five digital currencies, individually — as well as EOS (EOS). Bitcoin and Ethereum ETPs are already listed as products with XRP (XRP) joining the crowd, soon enough.
In other words, this company wants to bring cryptocurrencies to institutional investors — and retail investors used to the convenience of buying stocks.
It may be safer than some current options and definitely regulated — but is it a step in the right direction, though?
Cryptocurrencies and Stocks: A Match Made In Hell
For now, the ETPs are 100-percent backed by their derivative cryptocurrencies, according to Amun’s fact sheet — but there’s a catch. If an investor buys ABTC (the Bitcoin ETP) or AETH (the Ethereum ETP) he or she won’t actually own anything but stock. The bitcoins or ethers will be in Amun’s sole possession and will be managed and stored by a central custodian. As a result, the investor will have to fully trust a lucrative third party. This goes against everything the cryptosphere stands for or, at least, should stand for.
Bringing institutional investors into this nascent market could quickly backfire. Indeed, they will inject liquidity into cryptocurrencies — but not because they actually want the blockchain to thrive. They will do so for strictly speculative purposes. With enough funds, they will take hold of the industry, rigging the prices and cannibalizing the market, similar to what is currently happening with commodities and the stock market.
The cryptocurrency industry is already plagued by price manipulation techniques and, instead of fixing the problem, we will just institutionalize manipulation altogether.
Amun may currently have fully collateralized ETPs but, as commodification grows and evolves, other companies will start creating diluted crypto-based derivatives not fully backed, similar to the current state of the precious metals markets.
There have been numerous reports in the past several years regarding the COMEX — a futures and options market for metals — using a sky-high leverage ratio between ‘paper’ gold/silver and actual physical gold/silver stored in vaults.
In a nutshell, all this translates to centralization in terms of price manipulation, cryptocurrency holdings, and actual supply. (Just imagine Bitcoin (BTC) trading as a 100-million-total supply coin, instead of 21M.) Very few trading companies will end up having most of the coins. When the industry becomes centralized, it moves further away from the original ideas envisioned by Satoshi Nakamoto.
Nakamoto might have dreamt of creating the perfect decentralized world, but we ruined it. Nakamoto might have dreamt of giving us total financial freedom, but we are slowly giving it all away.
What do you think? Is the commodification of the cryptocurrency market a step in the right direction? Won’t it lead to even more centralization and price manipulation? Let us know your thoughts in the comment section below!
Images courtesy of Shutterstock, Twitter.