It's an interesting question, and you’re definitely tapping into some complex dynamics between Bitcoin’s true supply and the synthetic representations of it.
The concern you're raising — about synthetic shares of BTC flooding the market — is valid. While Bitcoin itself is limited to 21 million coins, derivative products like ETFs, futures, and options could potentially create the illusion of more BTC in circulation than there actually is. In a way, this could mimic the kind of “synthetic” asset scenario you mentioned with GME.
So, while there’s a risk that synthetic BTC could flood the market, it all boils down to how much regulation is in place and how decentralized the custody and trading of BTC remain. The system might evolve toward more institutional control, but whether that becomes problematic for Bitcoin’s value and security is something that will play out over time.
As for how this compares to GME, it’s definitely an interesting parallel. The key difference is that Bitcoin has a finite supply baked into the code, whereas the financial products built on top of Bitcoin (like ETFs) can be manipulated, much like stocks. It’s something to watch closely as Bitcoin continues to gain institutional traction.
What are your thoughts on how that might play out? Do you think Bitcoin will retain its decentralized nature, or is it heading toward a more traditional financial system?
It's a very interesting scenario. Of course, the underlying asset (BTC) will continue to be decentralized. But if it continues to be "wrapped" in tradfi products, the "decentralized" integrity gets diluted in these products...especially if synthetic shares of BTC continue to get traded in large volumes and only get settled onto the blockchain periodically.
I don't think this is the perfect analogy, but it might be similar to the problem that
ETH has been experience with its L2 counterparts eating away from ETH's gas fees and revenues.
There may be a scenario where large tradfi institutions are making tons of fees from volume trades of BTC derivatives that never hit the blockchain, and they simply use BTC as a settlement layer occasionally for 10Q/10K filings. That's alot of time between audits to do some price manipulation.
Again, I'm not an experienced equities trader either and I won't pretend to even understand how Market Makers and clearing houses manipulate stocks using synthetic shares and naked short selling....but whatever they are doing to equities (and particularly what they did to GME) might be used in BTC in the long run.
And this is where I think the concept of limited supply of BTC might be irrelevant when it will be part of the tradfi system. Unless people actually self custody their BTC, just like people DRS-ing their stock (which literally no one does except hardcore GME investors), this might allow tradfi to essentially create an infinite number of BTC derivatives essentially making BTC an "infinite supply" commodity