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In summary
- Bitcoin investors became increasingly paranoid about the transparency of transactions between Coinbase and BlackRock.
- Although the price of Bitcoin hit a new all-time high in March, buyers believed it should be higher with the influx of capital.
- Coinbase was accused of issuing “IOUs” instead of purchasing actual Bitcoin, sparking rumors on social media.
Paranoid Bitcoin investors are increasingly convinced that transactions between Coinbase, the largest Cryptocurrency exchange in America, and BlackRock, the world’s largest asset manager, may not be entirely transparent.
Although a rush of capital into new Bitcoin ETFs has driven the price of BTC to a new all-time high in March, just two months after ETFs were approved in the US, bewildered Bitcoin buyers say the price It should be much higher with all those billions flowing into the market.
Coinbase, the US-based cryptocurrency exchange that acts as custodian for most Bitcoin ETFs, including BlackRock, may not actually be purchasing the Bitcoin requested by these funds, and instead simply issuing “IOUs.” ” or Bitcoin “on paper,” say critics.
The unfounded rumors resonated on social media over the past few months, eventually becoming loud enough for Coinbase CEO Brian Armstrong to address the concerns on X, formerly known as Twitter. “I’m not sure what this is all about (to be honest),” he said last week. “All ETF issuances and burns that we process are ultimately settled on-chain.”
However, just two days later, BlackRock filed an amendment to its ETF registration with the SEC that now requires Coinbase to release Bitcoin much more quickly to the asset manager, within 12 hours of notification, when BlackRock clients buy shares of their Bitcoin ETF product. Critics latched onto the update as evidence that their concerns were not unfounded.
But this is all talk, says Bloomberg ETF analyst Eric Balchunas. “I’ve been following the ETF industry for 20 years, and there has never been a case where these things are not with the custodian,” he told Decrypt. “First of all, it would be illegal.”
The idea that an ETF issuer or its custodian does not actually own the underlying asset is not new. As Balchunas noted on X, it’s a concern some gold investors have shared about gold ETFs for years.
An ETF is a way for investors to gain exposure to an asset, such as gold or Bitcoin, without actually holding the asset in their hands. For example, with Bitcoin ETFs, investors buy shares in BlackRock’s fund, and then BlackRock buys a corresponding amount of Bitcoin and stores it on Coinbase. However, there are tradeoffs, and the added convenience requires an element of trust—and risk.
Bitcoin skeptics would prefer to see on-chain receipts rather than receiving collateral. The idea that Coinbase may be issuing paper Bitcoin to BlackRock dates back to at least May, when the trader known as “Tyler Durden,” who has a sizable audience on X, began the accusation. “Blackrock can take as much Bitcoin as they want from Coinbase and the transaction is recorded off-chain,” he tweeted. The post currently has 1.6 million views.
Earlier this month, music producer and cryptocurrency trader MartyParty fanned the flames, claiming that the price of Bitcoin is not going up despite BlackRock “buying all the Bitcoin.” It is the “Scam of the century,” he wrote.
Balchunas dismissed the claims as a “conspiracy theory.”
“This isn’t like FTX, where you just launch an exchange out of nowhere, and some moron is running it from a penthouse in the Bahamas,” Decrypt told him. “(BlackRock) is a serious company that has dozens of lawyers. They are not going to jeopardize their hard-earned reputation, much less get sued by all the investors,” he said.
Balchunas confirmed on X that he had spoken to BlackRock for more information. He said the asset manager runs “its own Blockchain node” and pulls BTC balances from its wallet addresses into Coinbase Prime every night.
He stated that the company can show balances to customers if requested, but would never make them public as they could be subject to spam, such as dusting (when cryptocurrency users send small amounts of Bitcoin to wallet addresses to be tracked, contaminated). or deanonymize them).
BlackRock declined to respond to Decrypt’s questions, instead pointing to an interview that Robbie Mitchnick, the firm’s head of digital assets, gave to Bloomberg on Tuesday. When asked about last week’s controversial presentation on Coinbase, he said it was a “course update” and that “nothing of significance has changed.”
A Coinbase spokesperson confirmed to Decrypt that the unfounded rumors being spread about X were just that and nothing more, adding that regulatory updates were normal.
BlackRock’s IBIT is the largest and most successful of the ETFs currently trading in the U.S. The fund currently holds 357,732 BTC, according to its website, worth around $22.6 billion.
The price of Bitcoin has increased more than 140% in the last year, according to data from CoinGecko, with the price skyrocketing following the approval of ETFs.
“I would say take that as a victory,” Balchunas said, referring to the price of Bitcoin. “It could be a lot worse.”
“I mean, what price would make you happy?”
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