After Spot ETFs: Is Bitcoin Heading Toward a Power Struggle?
TechFlow Selected TechFlow Selected
After Spot ETFs: Is Bitcoin Heading Toward a Power Struggle?
Bitcoin ETF demand is substantial enough but does not completely dominate.
Navigating Web3 tides with focused insightsSource: Coindesk
Compiled by Mary Liu, BitpushNews
Michael J. Casey, Chief Content Officer at CoinDesk, believes the recent approval of spot Bitcoin ETFs has triggered a potential clash between Bitcoin maximalists and Wall Street giants. As major institutions like BlackRock and Goldman Sachs enter the Bitcoin market, Wall Street may prioritize Bitcoin mined with green energy or tokens not "tainted" by illicit activities—potentially sparking a battle over Bitcoin's future akin to the fierce "block size war" that began in 2017.
A Contradictory Entity
The significant presence of crypto industry figures at this week’s World Economic Forum in Davos highlights an inherent tension: on one hand, the industry craves acceptance from traditional business institutions; on the other, there is concern that such engagement might undermine crypto’s disruptive nature and its innate rebellious character.
This contradiction feels especially acute as 2024 shapes up to be the year of traditional finance (TradFi) entering the space. After all, the U.S. Securities and Exchange Commission’s (SEC) approval has laid the groundwork for large asset managers like BlackRock and Fidelity, along with major banks such as Goldman Sachs and JPMorgan Chase, to participate in the Bitcoin market.
The question is: will the involvement of these institutions affect the power dynamics within Bitcoin itself?
As these large regulated entities begin participating, will “Bitcoin Maxis” and long-time veterans who highly value censorship resistance and decentralization see their influence over Bitcoin diminish?
For instance, will BlackRock, Goldman Sachs, or JPMorgan insist on only purchasing tokens mined with renewable energy, or those that have no past association with unidentified actors—so-called “clean” coins? Could their demand for Bitcoin become so substantial that it materially alters the behavior of other participants, such as miners, thereby changing Bitcoin’s very composition?
It’s too early to say. While that may be a frustrating answer, the complex power dynamics within Bitcoin’s highly decentralized and diverse ecosystem are also part of what makes it unpredictable. This complexity is part of Bitcoin’s appeal, and in the long run, it leads me to believe these Wall Street giants won’t be able to make significant changes to it.
Precedent from the New York Agreement
One reference point in this context is the outcome of the so-called “block size war” in 2017.
At the time, 58 crypto companies lobbied in support of a proposed “hard fork” upgrade to Bitcoin’s core code that would increase the data capacity per block. The so-called New York Agreement aimed to reduce network congestion, allowing these businesses to process more transactions and earn higher fees. After several mining pools expressed support for the increase, many believed the change was inevitable—since miners, by choosing which blocks to mine, were seen as the decision-makers on whether new software versions would be adopted.
But a core group of developers and users opposed increasing the block size beyond the existing 2MB limit, arguing that the rising data storage costs would burden anyone running a node to validate the blockchain. They warned this would ultimately squeeze out smaller participants and lead to greater network centralization.
Instead, they advocated for a modification called Segregated Witness (SegWit), which reduced the data requirement per transaction, while also supporting Layer 2 solutions like the Lightning Network to handle off-chain transactions and minimize on-chain fees. They launched a User Activated Soft Fork (UASF), whereby everyone opposed to the larger blocks would reject any tokens mined by miners supporting the change.
In the end, the UASF rebels won. It was celebrated as a victory for the little guy—the idea that users, as the ultimate beneficiaries of the Bitcoin network, hold real power because their final demand for the token drives market-led decisions.
The New Whales
One reason to question whether the “little guys” can continue to determine Bitcoin’s direction is that the newcomers in the post-ETF era could come to own a significant portion of Bitcoin.
Some analysts estimate that demand from Bitcoin ETFs could reach as high as $100 billion. If so, that would represent roughly one-eighth of the total market cap—Bitcoin’s market cap being just over $800 billion at the time of writing.
So, sizable—but not entirely dominant.
Then there’s the so-called “dormant supply adjustment.” It’s reasonable to assume that a significant number of bitcoins that haven’t moved from their current addresses in over five years will never move again—either because they’re held by die-hard HODLers or because owners have lost their private keys. According to Glassnode, these dormant coins currently account for about 30% of the total supply—not exactly “dead coins,” but a factor worth considering when estimating the size of the active Bitcoin ecosystem.
Now we have $100 billion in ETF-driven demand, representing around 17% of the “active” Bitcoin market (approximately $581 billion). That suggests these institutions could wield real influence. If these heavyweights accumulate enough scale, achieving a UASF-like outcome as in 2017 could prove much harder.
However, Wall Street won’t be the only giant holders of Bitcoin. There are currently around 1,500 so-called “whale” addresses, each holding over 1,000 BTC, collectively controlling about 40% of Bitcoin’s total supply. Many of these are true believers who have “held” through thick and thin. They could coordinate among themselves or across addresses they control, making demands of miners and other participants in a manner similar to the UASF rebels—meaning Bitcoin OGs still carry weight.
One thing is certain: if a battle for Bitcoin’s soul emerges, it will be an extremely tough fight—just like the block size war.
Join TechFlow official community to stay tuned
Telegram:https://t.me/TechFlowDaily
X (Twitter):https://x.com/TechFlowPost
X (Twitter) EN:https://x.com/BlockFlow_News
CoinDesk
