The Fiat “On Ramp” and “Off Ramp” is a concept that is key to #crypto. Buying $BTC or any #crypto asset has never been easy and has always been constrained in one way or another by the “bottlenecks” of the stablecoin structure.
In a nutshell, to buy crypto and “enter the #blockchain,” you are forced to go through a stablecoin in one way or another. In theory, a stablecoin isn’t anything different from a traditional money market fund. A stablecoin manager, like Circle, accepts fiat in its bank account and then “mints” a number of stablecoin units, maintaining a 1:1 ratio between its bank account balance and the #blockchain. This is the “On Ramp.” The opposite is called the “Off Ramp,” and even though it should be equally easy to do, in reality, it isn’t because it clashes with banks’ regulations that require them to trace the source of funds of an incoming transaction.
The #blockchain isn’t anonymous, as many wrongly believe, but pseudonymous, meaning you can identify the wallet from where the transaction is being generated and even trace back all the previous wallets that held a specific token. So why doesn’t this comply with banks’ Money Laundering checks? Because the wallets aren’t KYCed. Several centralized exchanges managed to solve this issue by performing KYC on their customers and then assigning them a wallet. However, this still doesn’t fully fulfill banks’ requirements because all exchanges use “omnibus” wallets to manage the bulk of the amounts they handle, thus cutting the traceability of the transaction stream.
Intuitively, what I described creates a significant bottleneck for fiat money to flow in and out of crypto. A Bitcoin ETF, however, can potentially kill two birds with one stone:
- Operate under a legislative framework already in place and comfortable for the regulator
- Maintain the line separating fiat and crypto worlds for the happiness of all those who are against the merger of the two (although, as I wrote before in the post below, it has a pretty high certainty of happening in the future).
Thanks to the Bitcoin ETF, $USD and other fiat money will have almost no constraints to flow in and out of #crypto. When an investor spends 1 $USD to buy a share of the $BTC ETF, the manager can purchase 1 $USD equivalent of $BTC from a crypto in three possible ways:
- Buying directly from a $BTC holder
- Buying 1 Stablecoin from a holder and then using that to buy $1 equivalent of $BTC
- Minting 1 stablecoin (as described above)
No matter the option, that 1 $USD will flow into the bank account of a crypto holder (regardless of whether that is a person or institution). Personally speaking, I see Option 3 as the one with the highest chances of being pursued because real $BTC holders on-chain don’t want fiat back (quite the opposite), and holders of stablecoins would rather redeem them with the stablecoin manager than selling them “Peer to Peer” in the secondary market. A vast use of Option 3 will result in a significant increase in the market cap of stablecoins. When the market cap of stablecoins increases, it implies that fiat money is “being locked” on the #blockchain.
Right now, the total market cap of #crypto is only 1.66T$ against the 97.6T$ market cap of the largest 7,973 companies in the world. Imagine if a fraction of the money printing that inflated the #stocks bubble really makes its way into crypto thanks to the $BTC ETF. It doesn’t take a genius to figure out that the rising tide generated will be simply massive.
One day, perhaps, people will be easily able to spend crypto to purchase goods and services, including small expenses that are not economically incentivized due to still too high gas fees. But until that time, the possibility to convert fiat into crypto (and vice versa) will be a significant driver for the increase of the fiat-denominated value of the ecosystem.
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