How a Bitcoin ETF Can Lead to Price Manipulation – Why It Doesn’t Matter

Synthetic Bitcoin. Despicable. For those think the institutions are going force the death of Bitcoin here is my rebuttal.

There can only be 21 million ever unless a majority of network users vote to override that core principle. This seems like FUD of course they will use derivatives and other tools to manipulate price but as long as the underlying supply is fixed this can only go one way over a long enough time horizon.

These synthetic Bitcoins as we call them are just naked short selling of Bitcoin. Will this happen? Probably. Am I concerned? No. Here is why.

Naked short selling (selling an asset without owning it in the hopes that the value decreases and the shorter never needs to actually  purchase the asset) works great against assets that are not creating value over time. Naked short selling assets that create value over time is a much riskier gamble. This is why stocks like Bed Bath and Beyond were successful naked shorted into bankruptcy and why nobody can do this to Apple. This is also a reason why Gold prices have been able to be manipulated using “paper” gold, as the utility of gold hasn’t greatly appreciated over time. The point here being if an asset is not creating real value than it leaves it vulnerable to short selling, specifically naked short selling. If someone was to naked short sell a company providing real value (different than dollar denominated value as a function of currency debasement) the likely outcome would be financial ruin. 

How does Bitcoin create value over time? I see a number of ways it could but how it is doing it currently are this:

1) Bitcoin hardware is increasing efficiency in accordance with Moore’s Law. You can see this when comparing the miners used 5 years as opposed to those used today. They increase hashing output without increasing energy demand. This is valuable because you can mine Bitcoin and secure transactions on the Bitcoin network.

2) The software used to increase the utility of Bitcoin are also increasing over time. Layer 2s like lightning are increasing the transaction per second that can be completed using the network. This provides value by allowing Bitcoin to scale overtime as adoption continues to increase.

3) The Bitcoin network is valuable because it allows individuals to store and transact value without the need of a custodial service. These custodial services have a proven track record of gambling away your “savings” and restricting your access to your funds when you conduct activity they do not approve of. I.E. Silicone Valley bank or the Canadian Truckers debanking. 

4) Bitcoin miners introduce a buyer into energy markets that have not previously existed. Current electrical capacity is produced to meet demand. In events where demand spikes and generation is not in place to meet demand you get black outs. This happened this summer in Texas where demand spiked, Bitcoin miners (RIOT) shut down their miners and sell that energy back to the grid to increase supply to avoid blackouts. Blackouts cause billions of dollars worth of damages and risk a year.

5) The Bitcoin network provides banking services to people who do not have access to banking and/or strong currencies giving them the ability to become “banked”. This is inherently valuable to tens of millions of people.  

These are a handful of aspects where the Bitcoin network provides real value to users. This list will grow over time as more people develop solutions that require POW cryptographic hashing.

So if you want to naked short sell an asset that has a fixed supply, is creating and will continue to create value at a rates similar to Moore’s Law while the existing global financial system continues to devalue its currencies I have two things to say.

1) Good Luck.
2) I will pray for you.

Bitcoin seems to be a cyclical asset. Naked short selling into the next bull run will lead to certain death. But will be extremely profitable during bear markets. So that is why these Synthetic Bitcoin will be used to manipulate the price if it isn’t happening already. Am I worried that this will kill Bitcoin? No because Bitcoin is providing real world value that will out pace dollar debasement in an environment where digital scarcity will most likely be valued at a premium. While these naked shorts will effect the price, over a long enough time period Bitcoin will inevitably appreciate in real world value. This is proven when pricing assets in Bitcoin as seen in the graph below.