This is why I’ve always said a spot #bitcoin #ETF is a double-edged sword. Pick up any ETF prospectus and you’ll see that market-makers are lawfully permitted to sell more units than they hold in the underlying asset to back them—to facilitate market liquidity, supposedly. That’s just a form of naked shorting—but it’s legal for ETF market-makers. There will be other “paper bitcoin” games played too, once WallSt joins the bitcoin game en masse & prime brokers start allowing collateral substitution, unbacked leverage, et al. These are all just other forms of the same “paper bitcoin” games played by the now-defunct crypto exchanges & lenders in the last bull market.

That said, to quote Trace Mayer, bitcoin is the apex predator of finance—bc eventually everyone playing those “paper bitcoin” games will fail due to insolvency. When that happens, bitcoin could go “no-offer” temporarily (ie, when there’s literally no one selling on-chain bitcoins amid a run on all the insolvent counterparties). No one knows when that will happen, but I believe someday it will.

I’ve been trying to warn leveraged players about this for years, mostly to deaf ears. People who came from the leveraged parts of WallSt (incl SBF) bring with them their risk models, which they think they can apply to bitcoin as a new asset class. But their risk models don’t work for bitcoin—bc there’s no lender of last resort for bitcoin (🙏🙏🙏).

That said, such leveraged players will unfortunately keep wreaking havoc until they learn that lesson the hard way…