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Are Recent Regulatory and Political Moves Good for Bitcoin?
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Are Recent Regulatory and Political Moves Good for Bitcoin?

The answer is becoming clear: not only will they not ban it — they will embrace it.
Rapha Zagury
Rapha Zagury
May 28, 2024May 28, 20244 min read4 minutes read

I think the recent regulatory developments are very positive for Bitcoin. Trump’s comments and the approval of Ethereum ETFs are significant and incredibly bullish for Bitcoin.

During my many discussions with institutions, I lost track of how many times I was asked: “But will Governments ban it?”

The answer is becoming clear: not only will they not ban it — they will embrace it.

As many of us predicted, game theory is coming into play. Politicians are slow to understand this, however, because, as Thomas Sowell said, they usually ignore the first rule of economics — scarcity. Nevertheless, politicians do value votes, and voters will cast their ballots to protect their right to savings. This right should be inalienable.

As more people begin to understand and adopt Bitcoin, the political landscape will be forced to adapt. Ignoring this trend means losing votes. After all, savings are the monetary representation of proof of work. Individuals transform their time and labor into something they can use in the future. This is why Bitcoin resonates so deeply with those who understand its value and are tired of seeing arbitrary debasement. 

Bitcoin is ethical money — it separates money from the state and stands for financial freedom.

Meanwhile, institutional adoption of Bitcoin is skyrocketing. Even pension funds like Wisconsin’s are getting in, showing a new level of confidence in Bitcoin as a legitimate asset. As more institutions enter the market, Bitcoin’s position as a reliable store of value is further solidified.

Regarding the SEC and the Ethereum ETF approval, the SEC now has the opportunity to turn its focus back to its original mandate under the Securities Acts of 1933 and 1934: Disclosure. One of the key reasons why the SEC was established and that, unfortunately, seems to have been forgotten.

Instead of gatekeeping, there’s an opportunity for the SEC to, for example, properly educate the public on Bitcoin self-custody, or even better, how ETH is different from BTC. An ETH ETF naturally leads investors to the flawed conclusion that they need to diversify: “If I have Bitcoin, I should also hold Ethereum.” This is because they think in terms of asset allocation without spending too much time on fundamentals.

Buying Ethereum to diversify is like buying Pets.com to diversify your Amazon.com exposure. But I think this comparison is flawed; at least these companies were both in internet e-commerce. The comparison between Bitcoin and ETH is far worse.

Ethereum simply cannot compete in the store of value arena. Its monetary policy has changed numerous times. The table below, although incomplete for Ethereum as there have been more changes since it was published in 2022, is precise for Bitcoin.

Since its inception, Bitcoin has maintained a stable monetary policy — a beacon of predictability in a volatile financial world. Ethereum is digital fiat: no supply cap, concentrated control, and hard to verify.

Even more importantly, money is the base layer for price signaling; it’s the asset other assets are denominated in. The best money tends to capture it all. This is a winner-takes-all (or almost all) process. Diversification, in this case, is a mistake.

I remember someone once telling me they would keep their Bitcoin Cash and Bitcoin SV coins as diversification to their Bitcoin exposure. That’s not diversification; it’s what I like to call WORSIFICATION.

History is not kind to altcoins. It shows this is a winner-takes-all game, and all others die at the bottom right side of the x-axis of the chart below.

In 2023, I conducted an analysis of almost 8,000 altcoins’ performance since 2016. Forty-one (or one-half of one percent) outperformed Bitcoin, with an average outperformance of 1.46 times its performance. 2,635 underperformed and on average returned 0.04x BTC’s performance — That’s a 96% underperformance on average. And what of the remaining 5,324? They had no trading volume — effectively worth nothing. The bottom right corner is where shitcoins go to die.

But you don’t have to trust me. Try for yourself. Go through the process of sending a Bitcoin transaction, running your own node, and understanding the mempool. Check out the code and verify the halvings that lead to the 21 million supply cap. Then try to do the same for Ethereum. I wish you luck. You’ll have to check back often though because here’s their roadmap, and each box will change the rules.

Economic agents should place a premium on predictability and a discount on uncertainty. Bitcoin offers a history of fifteen years of predictable and stable monetary policy compared to today’s world of noise and confusion. More importantly, it offers that predictability into the foreseeable future, and beyond. 

Rapha Zagury

Rapha Zagury

Rapha is the Chief Investment Officer and Head of Research at Swan Bitcoin. He previously spent his career on Wall Street as Managing Director of Deutsche Bank, and later as the Founder of Open Co.

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