April 19, 2024
ETF Race Prompts Issuers To Disclose Addresses
Bitcoin News

ETF Race Prompts Issuers To Disclose Addresses

To compete effectively, potential issuers of spot Bitcoin exchange-traded funds (ETFs) must eventually reveal on-chain addresses for the underlying BTC, asserts industry activist Samson Mow, CEO of Jan3. Mow emphasizes the importance of disclosing verifiable on-chain proofs as the best approach to ensure the transparency of Bitcoin reserves backing spot Bitcoin ETFs. Surprisingly, none of the 14 existing ETF applicants have undertaken the task of providing on-chain proofs.

Concerns have arisen within the cryptocurrency community regarding the credibility of spot Bitcoin ETFs and the possibility of creating “millions of unbacked BTC.” Bloomberg ETF analyst Eric Balchunas contends that holding actual Bitcoin is in the best interest of ETF issuers to maintain reputation and trust.

Valkyrie co-founder and CEO Leah Wald suggests that investors can verify spot BTC ETF holdings by examining regularly available records from the ETF provider. She notes that this verification process should be analogous to confirming the holdings of an equity ETF through publicly available fund records. Technical users can also scrutinize on and off-chain fund flows for additional confirmation.

Addressing skepticism about the verifiability of underlying holdings, some applicants, including Grayscale Investments, have declined to disclose addresses, citing security concerns. Grayscale stated on X (formerly Twitter) in November 2022 that due to security considerations, they do not make on-chain wallet information publicly available.

Despite acknowledging the possibility of certain issuers violating rules and creating an “unbacked” spot Bitcoin ETF, Mow underscores transparency as a crucial competitive factor in the race for spot Bitcoin ETF approval.

“Technically, it should not be possible for an ETF to issue unbacked shares as they are tightly regulated, but regulation doesn’t necessarily mean that issuers play by the rules.”

With U.S. securities regulators expected to potentially approve the first spot Bitcoin ETFs in early January, the industry anticipates increased competition.

“As the ETF arms race escalates, I believe we will see one or more funds disclose their addresses in a bid to be viewed as the most transparent and reliable issuer.”

Analysts predict a 90% chance of SEC approval by January 10, while some foresee a fee competition, as issuers like Invesco and Galaxy may waive fees for the initial six months and the first $5 billion in assets. Balchunas and fellow ETF analyst James Seyffart suggest that rejection, if any, might be a regulatory strategy rather than an outright denial, emphasizing the significance of transparency in this pivotal moment for the ETF landscape.

Photo by Markus Winkler

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