US Govt Could Capture Bitcoin Via The Spot ETFs: Expert

In a thought-provoking exchange on X, Matteo Pellegrini, founder of the Orange Pill app, has ignited a significant debate among Bitcoin experts and enthusiasts.

Pellegrini shared insights from a recent conversation with an undisclosed source, revealing a potential strategy by the US Government to exert control over Bitcoin through a spot Exchange-Traded Fund (ETF)

Can The US Government Conquer Bitcoin?

Pellegrini’s theory, stemming from a conversation with an anonymous source, proposes a scenario where “Bitcoin held in the ETF and other US government approved custodians are marked as ‘white Bitcoin’.” In contrast, all others would be considered ‘black Bitcoin.’

This distinction could lead to a staggering valuation difference, with ‘white BTC’ potentially trading at $1 million compared to ‘black BTC’ at $100,000. The government, under this theory, could then start converting ‘black Bitcoin’ into ‘white,’ gradually acquiring a dominant share of the cryptocurrency while no arbitrage is possible.

Pellegrini expressed his inability to find a logical solution to this scenario, seeking insights from the crypto community to prevent a situation where the government could end up owning a majority of BTC. “How do we stop this from happening? What’s the game theory that makes this impossible or very unlikely?” Pellegrini said.

In response, Samson Mow, founder of JAN3 and a prominent figure in Bitcoin nation-state adoption, answered “Hawking radiation” as a possible factor.

Mow earlier posited that BTC might bifurcate into “Institutional BTC” and “Free BTC,” with coins in ETFs potentially facing restrictions re-entering the free market.

He compared an ETF to a black hole, gradually losing its mass over time due to fees, a process akin to Hawking radiation. “If an ETF is a black hole for BTC, it will emit ‘Hawking radiation’ and will lose mass over time. That ETF Hawking radiation is the fees charged by the fund manager. After 30 years you’d lose 46% of your holdings,” Mow remarked, pointing to self-custody as the primary solution.

Decentralization And Self-Custody Is Key

Bob Burnett, founder of Barefoot Mining, contributed to the discussion by emphasizing the importance of independent block template creators and node support to maintain BTC’s freedom. “As long as we have several independent block template creators and support from the nodes then Bitcoin lives freely,” Burnett suggested.

Moreover, a user named Dario made another good point. He highlighted that BTC network rules are determined by node consensus, implying that ownership percentage does not directly influence network rules.

Petri Järvinen challenged Pellegrini’s concern, questioning the likelihood of Bitcoin being controlled by an ETF holding more value than self-custody coins. “It’s the complete opposite,” remarked Järvinen.

Pellegrini responded, suggesting that institutions and those seeking compliance with US government regulations might be compelled to invest only in white BTC. Järvinen countered this, doubting the feasibility of such segregation and suggesting that such controlled Bitcoin might be sold at a discount.

In a closing note, Pellegrini remained optimistic, echoing Jeff Booth’s sentiment that BTC’s survival hinges on its continued decentralization and permissionless nature. He stated, “Jeff Booth says Bitcoin will survive only if it stays decentralized and permission-less, which I tend to agree.”

At press time, BTC traded at $37,078.

Featured image from Verdict, chart from TradingView.com