Abra just announced they are going to be allowing users to buy ETF's and stocks with Bitcoin! This is huge for the crypto market and some have said it could cause a rally in the price of bitcoin.
Lets look and see if that is the case, but before we do,
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How Can Abra Affect the Bitcoin Price?
Since Abra is built on Bitcoin, the app could also have huge implications for the bitcoin price. This is because the amount of bitcoin tied up in Abra’s crypto collateralized contracts must be worth the value of all assets held on users’ phones.
Although many different use cases have been touted by cryptocurrencies over the years, the key use case that has the largest effect on the prices of these cryptocurrencies is hodling (see this previous explanation on this point). With Abra, all of the users effectively become bitcoin hodlers, even though they’re only exposed to the price fluctuations of the specific assets held in their Abra portfolios.
The total value of all of the assets held by Abra users through the app is effectively part of bitcoin’s overall market cap.
As a side note, there could also be implications for the Litecoin price in a situation where Bitcoin network fees spike to the levels seen in 2017. During that time, Abra tweaked their system to be able to run on top of Litecoin as well. However, I confirmed with Barhydt that the system is currently only running on Bitcoin.
Will It Work?
It should be noted that there are some reasons to be skeptical about whether Abra will actually work in practice.
First of all, it’s unclear if various governments around the world will allow something like Abra to exist. As mentioned previously, there is no need for Abra to collect personally-identifying information about their users, which means the company is potentially a real-world version of the hypothetical Swiss bank account in everyone’s pockets former U.S. President Barack Obama warned against at SXSW 2016.
After all, drug dealers on various darknet markets may care less about turning their bitcoin or monero into physical cash if they’re able to peg their profits to the U.S. dollar or other more stable assets.
Having said that, it’s unclear what measures governments could take to shut down this sort of activity. Sure, Abra could be targeted, but that may just lead to the creation of a more decentralized, purely software-based version of the app where the central point of failure no longer exists.
There’s also the possibility that this idea simply crashes and burns during some of bitcoin’s own market turmoil. In a situation where the price of bitcoin falls dramatically in a short period of time, there may not be enough bitcoin in the system to back all of the supposed assets held on Abra users’ phones. The crypto bank would effectively become insolvent.
Barhydt talked about this issue during the aforementioned Off the Chain interview:
“If there was some catastrophic failure of Bitcoin itself, and we hadn’t, for example, migrated this to also support ether-based contracts, which we’ll do eventually so you have both, we would have a problem. The contracts also assume that the price of bitcoin doesn’t go to zero quickly. If it went to zero slowly, we would be able to get people out of the contracts. But if it went to zero overnight, that would be a problem.”
Either way, it may not matter what happens with Abra. Much like Napster was for permissionless file sharing, Abra could simply be the precursor to something much more resistant to regulators in the future.
Lets look and see if that is the case, but before we do,