Ethereum ETFs are the wrong solution to the right problem
Using old-world instruments to address crypto user experience challenges goes against what this industry set out to do
kkssr/Shutterstock modified by Blockworks
Numbers don’t lie — spot bitcoin exchange-traded funds (ETFs) have been a boon for the market. The first day of trading in the US saw over $4.6 billion in volume. Within a month, bitcoin rose above $50,000 for the first time since the bear market and hit $70,000 in March for the first time ever.
But this bitcoin ETF liquidity boost does not address any of the underlying issues in today’s crypto user experience, nor does it offer investors empowerment through self-custody.
In the case of ethereum ETFs, the outcome will likely be the same. Rather than rely on regulatory approval of such financial products to welcome traditional investors onboard, our industry needs to reimagine how we approach digital asset management so that users don’t need to choose between convenience and financial freedom.
What interest in ETFs really tell us
The appeal of ETFs is exposure to the crypto market without the hassle of digital asset custody. With over 900,000 ETH forever lost due to user error, it’s understandable that investors would look for easier ways to tap into the value created in this space.
But using old-world instruments to address crypto’s user experience challenges goes against what this industry set out to do — transform existing financial infrastructure to empower the little guy.
After years of being looked down on by Wall Street, ETFs are tacit acknowledgments by traditional investors that the crypto sector is something worth opening the floodgates of retail and non-crypto money into. Supposing that ethereum ETF approval generates further interest in the crypto space — be that bullish interest from Larry Fink at BlackRock, opposition from ECB director generals, or just curiosity from the trainer at my local gym — the opportunity lies in shepherding these new investors toward full ownership of their assets.
The ETF wrapper is one means of entry into crypto as an asset, but removing the wrapper brings us to the real treat — true ownership.
Newfound industry attention, now to trust ourselves
Why should individuals care about self-custody and financial freedom? While the answer may be obvious to those deeply embedded in the crypto community, trusting traditional banks is the norm, and the convenience brought by these institutions outweighs the risks of crypto for many individuals.
When the Bitcoin white paper was published 15 years ago, the manifesto envisioned a peer-to-peer network without financial intermediaries. Ethereum then brought new functionality to the digital asset space and created the foundation for DeFi innovation. For the first time, individuals could harness digital ownership and exchange assets globally online while preserving personal privacy and autonomy.
Read more from our opinion section: BlackRock and other bitcoin ETFs rob bitcoin of its room to grow
The challenge now is to get people of all investment experience and levels involved directly through self-custody of their assets. Products like ETFs, which mirror instruments in the traditional finance space, may have a positive market impact. However, they do not push individuals to reconsider traditional financial hierarchies and take ownership into their own hands. Only by directly engaging in self-custody platforms will we see crypto values influence mainstream audiences.
We’re only as good as our infrastructure
Self-custody is important, but how are we going to convince the next billion users to value freedom over convenience? It’s obvious that seed phrases and hardware wallets are not going to unlock digital ownership for mainstream users. In a time where payments can be made with a tap of a phone or a watch, the crypto industry needs usable features to appeal to traditional investors and everyday users.
That’s why Vitalik and other leaders in the Ethereum space are calling for a transition to smart accounts. By abstracting away the complexities of digital asset management, smart accounts enable features like crypto recovery, self-custodial debit cards and email login. In addition to smart accounts, improvements in scaling tools like zero-knowledge (zk) rollups have increased the capacity and throughput of DeFi applications, overcoming bottlenecks and preparing the industry for mainstream adoption.
Better features and scalability have paved the way for new use cases in crypto. Self-custody is no longer limited to individual asset management. With multi-signature accounts, for example, organizations and businesses can co-manage assets with ease. Further, developments in zk have reduced transaction fees, making it feasible for projects to facilitate large batches of transactions cost-effectively.
The crypto industry needs to continue building momentum
Bitcoin and ethereum ETFs have captured the zeitgeist, and now the crypto industry needs to capitalize on the mindshare introduced by this regulatory milestone. In the same way that football’s popularity grew in my German hometown in the aftermath of Germany’s 2014 FIFA World Cup victory, this newfound interest among conventional investors allows us to push self-custody to the forefront and showcase the opportunities unlocked by digital ownership.
ETFs encourage adoption; true crypto ownership encourages autonomy. Simplifying crypto user experience should be championed above simple ETF wrappers and commodity baskets. Bolstered with new liquidity, the industry needs to use this pivotal moment as a catalyst to revamp user experience across the board. Improving crypto-native platforms progresses the movement for digital ownership, which will outlast any market trends in the coming years.
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