ARK Invest CEO Cathie Wood says crypto exchange-traded funds (ETFs) will likely maintain their place in the economy, regardless of how widespread crypto wallet adoption becomes over the next decade.
“I think ETFs are an important stepping stone because, you know, wallets seem so complicated, so much friction for consumers, they just wanna push a button,” Wood said at the Solana Accelerate event in New York on May 23.
“So ETFs for those who want the convenience, I don’t think, will lose a lot of their luster,” she said. “But they will be a stepping stone into wallet-based.” — Cointelegraph report
It's anyone's guess what the true impact of the world becoming more informed on the existence and value of non-custodial wallets will be, but if we are generally talking about a recorded growth in adoption of said wallets, then capital flow should have already been redirected from ETFs to self custody.
It's a rather simple reality. If DeFi adoption grows, it only means that CeFi is losing users. These are competing service sectors so any growth in one means a lost value for the other.
Same thing applies to ETFs and every other centralized custody solution of crypto assets investments for traditional players. Growth in self-custody of cryptocurrencies hurts ETFs inflows.
But let's pretend that this isn't what the literal phrase “crypto wallet adoption” means and view this from how it's intended to sound, judging by Cathie’s statements in the linked report.
Will ETFs lose to non-custodial wallets?
The only accurate answer to this question is that the future is dependent on incentives available to users. Evidently, Cathie Woods acknowledges that growing adoption of non-custodial wallets will lead to some level of capital loss for ETFs but she nonetheless holds firm to the belief that the size of these losses will not be “a lot” but her statement isn't quite factual.
We cannot conclude that capital losses to ETFs will not be a lot without saying that non-custodial wallets will be shitty alternatives in comparison.
Her argument that convenience is needed for some investors is valid, however, this does not mean that ETFs will always lead in this area.
Most people, including myself, expect institutions to sweep up a lot of crypto assets supply, starting with bitcoin, but I also happen to believe that incentives will play a major role in how capital passes around our ecosystems and that could in itself influence the span of centralized institutions controls of major crypto assets.
There's a reason why some Exchange Traded Funds (ETFs) issuers are gunning for ETF staking approval from the Securities and Exchange Commission (SEC), added incentives to being a convenient asset management solution is quite the offer for most traditional investors.
Knowing this, we can very much argue that non-custodial wallets are very much capable of competing and effectively taking away ETFs capital flows if its developments get to a point of offering similar or better convenience in addition to delivering the best capital growth incentives in the ecosystem.
Today, major banks are scared of stablecoin yields because it's a known fact that their growth means less control of global capital flow by traditional finance institutions. As decentralized blockchains, tools and protocols advance and become less technical for every day users and incentives blow through the roof, centralized institutions will have a hard time competing.
The bottom line at the end of the day is that how much these things improve in convenience and incentives is what ultimately determines who takes the lead and to what extent. Every other thing matters less or really just comes later.