Luongo: Is The Bitcoin ETF “A Trap”?

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

So Tuesday October 19th, 2021 was supposed to be the day that changed everything for bitcoin.

And it may, just not in ways anyone bullish on crypto should be comfortable with.

Finally the SEC approved a Bitcoin ETF, the ProShares Bitcoin Futures ETF (BITO) began trading this week to great fanfare in the cryptocurrency community. There was much rejoicing as Bitcoin hit a new all-time high which it has since given back.

On the heels of that announcement Valkyrie changed the proposed ticker symbol for its Bitcoin Strategies ETF, another futures-based product, to BTFD. Gotta love the cheek, there.

And while that’s all well and good, I have to tell you that I have sincere reservations about popping the virtual champagne here.

Because I’ve seen this story before… in gold and silver.

I remember those heady days when all the gold bugs thought an ETF would be just the thing to solve the ‘liquidity’ problem gold had. At the time they didn’t want to hear that this lack of liquidity was one of those good problems gold and silver had.

Once people dug into the prospectus of the proposed SPDR Gold ETF, which has since then changed its name to SPDR Gold Shares ETF, they found that GLD didn’t have to hold physical gold of any particular quality. They could hold the dreaded ‘paper gold.’

That was the key to these funds being just another layer of the Matrix.

They opened up those markets to another sink to drain demand into a black hole of infinite ‘liquidity’ which in the end did nothing to help the price of gold. In fact, just the opposite occurred. It took pressure off the physical spot market and the forex trading of gold and dumped billions of unsuspecting retail investors into the Midgewater Marshes of Wall St.’s hyper-financialization engine.

Or does no one remember the definition of ‘Getting Corzined?”

So, will that happen with bitcoin since these ETFs are even less tied to the underlying commodity than GLD and SLV?

Before I answer that, let’s back up and set up some boundary conditions.

This ETF will trade and settle only in front-month Bitcoin futures contracts traded on the CME.  These are cash-settled contracts that bear no relation to actual commodities futures contracts where the buyer is pledging to take delivery of a defined-amount of say, soybeans, and the the seller is pledging to deliver that amount of soybeans by a certain date.

In these contracts there is no delivery of bitcoin, the underlying commodity, here.  The only thing delivered is cash.

This is just like there is very little gold actually delivered based on the outstanding volume of gold futures open interest on the COMEX during the delivery period during the first week of every other month. Most gold futures are settled in cash, because that’s what many want, a way to hedge dollar or euro exposure with gold without the hassle of actually owning the stuff.

And there is nothing inherently wrong with that. But it shouldn’t be the entire market and nor should the ETFs be marketed as having exposure to actual gold.

Even when people stand to take delivery in gold there have been multiple instances where cash-settlement was forced on the buyer, presumably because the gold wasn’t there.

FYI, it’s in the contract. The COMEX reserves the right to NOT DELIVER gold. Force majeure is a thing, even in the United States.

Futures of this type create nothing more than synthetic supply for speculators to make side-bets on the price of an asset without ever having to trade the asset itself. This sucks away demand for that asset and bearing the risk associated with holding it.

It creates absolutely zero actual physical demand for the commodity. So, these ETFs will generate absolutely zero demand on the Bitcoin blockchain, only send a secondary signal to actual bitcoin traders that there is something happening they should be aware of.

The question everyone should be asking which market is the more important? The actual bitcoin market or the bitcoin futures market?

What it does create is a very different set of parameters and games theory optimization strategies for those that play it.

They aren’t playing bitcoin, they are playing with “speculating on bitcoin.”

And this type of speculation has been going on since December 2017, when the CME’s original bitcoin futures contract began trading. No shock, then, to anyone with any sense of market history that bitcoin peaked in January 2018 and entered a two-plus year bear market.

Moreover, they aren’t risking their holdings of bitcoin as the seller of the contract or taking on the volatility risk of the future delivery of bitcoin as the buyer of the contract.

These aren’t futures contracts, they are more appropriately called ‘contracts for difference,’ or CFDs, that shady Greece-based Forex companies offer. In effect, I bet the price goes up, you bet it’ll drop and after a certain amount of time we settle our bet.

Futures are supposed to help producers of commodities and consumers thereof coordinate production and consumption through time.  They are a vital part of how a free market optimizes capital flow and risk assessment.

They help send signals to all players in the supply chain up and downstream of those base commodities what the supply and demand structure of those markets looks like. These are vital and essential pricing signals that when screwed with upset the flow of capital around the world. 

So, this should clue you in as to why all these ‘supply chain’ issues and rising ‘inflation’ concerns are suddenly popping up all over the world. There’s been a whole lotta shenanigans going on in various commodities futures markets now since the beginning of the COVID-9/11 psy-op pandemic.

From last year’s catastrophic contango in crude oil and the insane pump and dump of lumber futures to this fall’s rise in energy and industrial metals prices, commodities futures markets have become the plaything of speculators who are all downstream of the central banks money printing machines.

And since I subscribe heavily to the theory that there are no coincidences in geopolitics, I have to ask the basic question I always ask in times like these… cui bono?

Who benefits from this volatility?

For years the rent-seekers close to the central banks have turned futures from an essential market function into a tool of market manipulation by giving some actors access to free money to speculate on the asset and utilize the leverage they gain to push and pull the price for trading desk profits.

But, honestly, that analysis is as generous as I can be about this situation.

By corrupting the gold market nearly to its terminal state over the past fifteen years they have extended the life of the central banks’ power for close to two decades now. The game, in my opinion, is far more sinister than just profit motive, if only it were that banal.

No, this manipulation of global commodity prices has massive political and societal effects, corrupting everything these markets touch. Remember, a corrupt money begets a corrupt society.

So with corrupted futures markets we have corrupted the very essence of the structure of production and consumption, the very essence of voluntary exchange as the basis for civilization.

I wonder who benefits from that…. could it be Communists who hate Capitalism? Askin’ for a friend.

Back to gold and silver. GLD and SLV provide massive amounts of liquidity to retail investors which bleeds off physical demand.  I can’t tell you how many hours I’ve spent trying to convince people to STOP BUYING GLD AS A PROXY FOR GOLD over the past fifteen years.

If you want gold buy gold. Hold it in your hand, stop pussyfooting around and remember that not every decision you make with your money should be immediately reversible. That’s not investing, that speculating.

The only people who worship at the altar of the Gods of Liquidity are the market-makers skimming both sides of the trade.

GLD and SLV both act as a psychological crutch to never commit to taking the other side against the central banks and the powers that continually siphon off your best energy into rabbit holes of irrelevant distractions, like what some dumb chick said on Twitter the other day.

You think you’re buying portfolio protection or are hedging against the dollar but all you’re doing is creating the very synthetic short against your portfolio that dulls its returns over time.

By buying either of these funds you are just feeding the beast who is working against your well being.

Because while they may track the gold price they don’t give you any actual say in the price of it, because all you’re doing is signaling SPDR to print more shares to buy more contracts on the COMEX which were printed out of thin air by some investment bank borrowing money from the Fed at 0%!

The same will go for any bitcoin ETFs that don’t hold physical BTC.

This is why SEC Chair and Davos troll par excellence Gary Gensler fast-tracked this ETF now after 5 years of the SEC farting around saying no to real Bitcoin ETFs. Everyone serious about crypto wants a physical bitcoin-settled ETF, which the SEC doesn’t want to grant because that would be something that would 1) increase the actual demand for Bitcoin and 2) would expose those involved in the trade to actual time-risk.

The biggest clue that these ETFs are not for our benefit but theirs is the following. Settling bitcoin accounts for the ETF daily would be the easiest ETF of this type to implement ever. At the end of trading on any given day the fund simply sends one measly transaction to the blockchain to buy or sell the net of all the trades of the bitcoin ETF’s shares for the day.

Hell, they could settle it up every hour if need be during times of volatility. With Lightning Network live, that settlement could even happen there and bleed the blockchain traffic off over time if there’s congestion and the fees too high. It would lead to less bitcoin volatility in the long run, rather than more.

And before you begin criticizing me, it’s irrelevant whether I have the settlement mechanisms right here or not, the finer details could be worked out easily if anyone at the SEC cared to want to do that job.

What’s important is that the blockchain creates a far more stable environment for issuing a commodity ETF than any other physical commodity actually does. It’s not like we need warehouses to store digital commodities, after all.

Moreover, I can even see some upside for the government here. With a daily on-chain settled ETF government stooges like Gensler would then bleed investor demand away from non-KYC/AML compliant crypto exchanges (of which there are dozens) and put them under the purview of Wall St. brokerages, SEC compliance rules etc. where more crypto investors would pay their capital gains taxes, which I thought is what Treasury Secretary Janet Yellen wants to crack down on so badly?

So, again, why didn’t they do this and why are we instead going to get a critical mass of these corrupt futures-based ones?

I think you know my answer to that.

They need to get as many hooks into bitcoin that they can now to control the price and siphon off retail investor demand while also collecting massive trading fees and trading against their clients’ books.

The same way they do in gold.

Because they have all but admitted at multiple layers of the technocracy that bitcoin has already beaten them.

I’m with Raoul Pal in saying if Gensler was pro-Bitcoin he wouldn’t approve a futures ETF, he’d approve a real one.  As I said already, if there is one commodity on the planet that can handle a day-to-day settled ETF with physical accounting of the float it would be Bitcoin.

And yet they won’t do it.  It is expressly against their goals to encourage investors into Bitcoin in ways that would improve it as a market. Instead they want to add bitcoin to their schemes of suppressing the price and sucking up the supply over time, the same way they have destroyed the oil markets, the gold market and every other damn market these vultures have ever touched.

So, my advice is stay in actual on-chain bitcoin.  You want bitcoin. Buy some frickin’ bitcoin.

Buy the Grayscale closed-end fund, GBTC, if you need to.

Or, do what millions have already done, just learn to take full control over your investments and your portfolio hedges and tell the Genslers of the world to go stuff his shit back up his ass where it belongs.

They are going to tempt you with lower trading fees on their exchanges as opposed to the much higher ones on Coinbase.  It’s being designed this way on purpose.  Here, you can trade bitcoin for free on RobinHood, why pay Coinbase their fee?

Or do yourself a real favor and stop trying to trade bitcoin and listen to the laser-eyes set on Twitter. Just buy the stuff, pull it off the exchanges onto a hardware wallet and ignore all their fancy, financial schemes to separate you from real value.

These things are ultimately just marketing. Bitcoin didn’t need an ETF to scare the living daylights out of Wall St., Davos, the CCP and every other would be Bond Villain out there.

Thanks to Zerohedge for the above chart. This is what you are staring at over time if you buy this over buying bitcoin directly. No different than what happened to a lot of gold holders who tried to outperform the market through the price manipulation on the COMEX over the 2005-11 bull market.

Davos wants private cryptocurrencies banned but failing that they want it as much of it under their control as possible. It’s why the World Economic Forum has ‘approved of’ and is ‘working with’ a list of preferred cryptocurrencies while Gensler and Yellen muck up the market and insert dangerous language into unpassable legislation, e.g. the Build Back Better plan.

The problem for them is that Wall St. wants private crypto because it is one of the ways for them to survive the collapse of the current monetary system, since the traditional banking model is as dead as MySpace. The CFTC settlement with Tether last weekend tells you all you need to know about who’s actually in charge on Capitol Hill… and it ain’t Davos.  

That was a JPMorgan-style slap on the wrist similar to the SDNY’s settlement with Tether in December.  Tether may be a scam or a Ponzi scheme but it’s now another Wall St. approved scam and Ponzi scheme.

But it’s still not approved by Davos.

Gensler is fighting an uphill battle against an avalanche of capital that wants yield in a yield-free world. It’s a global market and everyday with Lightning online, the third world is getting access to first world payment technology. That’s the real battle they are losing.

Jay Powell came out today and reiterated his commitment to ending QE (hint: not a policy mistake) and allowing all that money printed and he’s sterilized over the past six months within the RRP facility to allow the economy to run without any further support.

He has finer control over dollar in/outflow than a Fed chairman ever has and right now, all the right people hate him. Meanwhile everyone on Capitol Hill has COVID-9/11 and January 6th fatigue except the ones holding desperately to the reins of power.

The arguments for sending the country on another spending spree seems dumb when there are help wanted signs everywhere and even that too dumb to be considered a dimbuld, Jen Psaki, is trying to play off their manufactured supply chain crisis with the excuse that people are buying so much stuff.

And we need $4.5 trillion in spending for what again exactly?

How’s that awesome power of the Speaker’s Gavel feel when jammed down your throat, Nance? Mmm… rosewood.

This will put upward pressure on UST yields for a time but worse it will begin a stampede out of European debt as the situation there as I’ve discussed ad nauseum ad infinitum is far worse than anything happening on Capitol Hill. All that has to happen now is for O’Biden to admit defeat and GFTO (which is another good candidate for a Bitcoin ETF ticker symbol, in my opinion) of the way.

We know they won’t, so brace yourselves for the mother of all battles for our monetary future.

And even if Gensler succeeds in taming bitcoin and major private cryptos all he’ll do is drive the economy underground. As Martin Armstrong has been warning us for decades, this is the main way empires collapse, by driving capital underground, deflating asset prices through collapsing money velocity and forcing monetary inflation to offset it.

Sound familiar?

Got Bitcoin? Got Gold? Got Depends?

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