Could the Bitcoin ETF Push Trigger a Blockchain Rebound?

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In what has become a group effort by companies like BlackRock, NASDAQ, and Coinbase, some of the biggest players in the future of markets, cryptocurrency, and capital growth have attempted to legitimize cryptocurrency, especially Bitcoin. They hope to allow the biggest asset managers to buy it outright.

So far, the Securities and Exchange Commission (SEC) has blocked the attempts. Applications for exchange-traded funds in the spot market that directly hold Bitcoin have been repeatedly rejected. (Current bitcoin ETFs can only hold bitcoin futures or stocks of companies with crypto exposure.) BlackRock recently resubmitted its ETF proposal after a first-round rejection.

After the noise around crypto was silenced by fraud and the emergence of generative AI, these Bitcoin ETF efforts, especially BlackRocks, could be the catalytic blockchain and Bitcoin needs to take over the world of corporate finance.

What CFOs need to know

The biggest takeaway for CFOs is that digital assets are here to stay, even if not mainstream yet, said Christos Makridis, CEO and founder of Dainamic, a fintech startup, and professor of blockchain and artificial intelligence economics at the University of Nicosia in Cyprus. However, it is important that CFOs participate in the regulatory policy discussion; their voices need to be heard, especially since financial services is the sector that has seen the biggest increase in regulation since the financial crisis, according to my research.

For those who have found success in the crypto space, its long-term use in corporate finance fundamentals has its place. Raymond Chen, a former community manager of the blockchain analytics platform Nansen, and now an entrepreneur and investor in the industry, also doesn’t think embracement of the technology has been overcome by the emergence of AI. Financial leaders, especially CFOs, have something to be aware of, he said.

In the web3 market, finance leaders should keep a close eye on decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs), Chen said. DeFi enables innovative financial products and services while giving individuals greater control over their assets, while NFTs are revolutionizing digital ownership and providing new possibilities for creators and collectors. DAOs represent a new form of governance and decision-making, allowing community projects to thrive.

Other comparisons with AI

This potential rejuvenation of crypto- and blockchain-inspired financial products can benefit CFOs and make them realize that AI isn’t the only way to solve their problems. Much like ChatGPT, data tracking, forecasting, and other fundamentals of corporate finance can be supported by blockchain technology in a similar capacity.

Christos Makridis

My view is that AI and distributed ledger technologies (DLT) are two sides of the same coin, Makridis said. AI is about learning from data, and DLT is about managing data securely and preserving privacy.

While there is substantial interest in permissionless blockchain ecosystems, some of the significant organizational efficiencies lie in creating permissioned systems that track inventory and execute payments at a lower cost than existing accounting processes, he said. The biggest challenge is migrating on-chain activity, even if it is already internal, as this often requires changing where data is stored and how it is accessed.

But the solution is to conduct a simple pilot and adapt it accordingly, and after evaluating the success of the pilot, CFOs can forecast the potential savings and experiment with applying blockchain to more internal processes.

Smart contracts

Talking in more detail about AI and blockchain technology working together, Chen and Makridis mentioned smart contracts. These contracts earn their smart title to automatically execute a contract once a predefined number of conditions are met. They have mixed use cases in corporate finance. While scammers take advantage of contracts, their integration with AI can simplify automation.

Raymond Chen

Artificial intelligence technologies can improve consensus mechanisms, strengthen security measures and automate complex processes, Chen said. They can also facilitate data analysis and smart contract execution, leading to more efficient blockchain networks. These industries absolutely fit together, and I see great potential for collaboration between AI and blockchain.

Smart contracts are not always so smart.

Christos Makridis

CEO of Dainamic and Blockchain Professor at the University of Nicosia

Makridis, while agreeing with Chen on the positive impacts AI can have on smart contracts, believes there is still work to be done before the technology can be implemented at scale.

Smart contracts aren’t always so smart, Makridis said. It is a series of if and then commands. But what if something goes wrong? What we need is a more adaptable set of contracts, resilient to deviations around a mutually agreed point and able to operate under uncertainty.

This is where AI comes in, he said. Reinforcement learning and dynamic programming involve producing dynamic predictions under conditions of uncertainty. If we have better quasi-autonomous dynamic models in the background, we can build real smart contracts that work in environments of uncertainty.

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