Some potential issuers of spot Bitcoin exchange-traded funds (ETFs) may need to disclose the on-chain addresses of the underlying BTC to stay competitive, suggests Jan3 CEO Samson Mow, an industry activist. Mow believes that providing verifiable on-chain proofs demonstrating Bitcoin reserves would be the optimal method for spot Bitcoin ETF issuers to authenticate their holdings. However, as of Dec. 28, none of the 14 existing applicants have actively pursued offering on-chain proofs, according to Mow.
Concerns have been raised by cryptocurrency observers regarding the legitimacy of the underlying holdings of a spot Bitcoin ETF. Executives have even suggested that such ETFs could potentially result in “millions of unbacked BTC.” Bloomberg ETF analyst Eric Balchunas and others argue that holding actual Bitcoin is in the best interest of ETF issuers to maintain their reputation and trust, as not doing so could lead to a loss of credibility.
Valkyrie co-founder and CEO Leah Wald asserts that investors can verify the BTC holdings of spot ETF issuers by examining publicly available records from the ETF provider. She suggests that, theoretically, this process should be similar to verifying equity ETFs, and regulators will monitor the underlying asset holdings. For more technically inclined individuals, the Valkyrie CEO mentions that one can also analyze fund flows on and off-chain.
Addressing concerns about the transparency of the underlying holdings, skeptics argue that such assets are not verifiable without on-chain proof from issuers. However, some spot Bitcoin ETF applicants, including Grayscale Investments, have declined to disclose addresses due to security reasons.
Mow acknowledges the hypothetical possibility of an issuer creating an “unbacked” spot Bitcoin ETF if they violate rules, even though regulation is designed to prevent such scenarios. Despite acknowledging the potential for some issuers to bend the rules, Mow emphasizes that transparency will be a crucial competitive aspect in the spot Bitcoin ETF landscape. He predicts that, as the ETF competition intensifies, one or more funds may disclose their addresses to be seen as the most transparent and reliable issuer.
The first spot Bitcoin ETFs in the United States are widely expected to receive approval from securities regulators in early January, with Jan. 10 identified by many analysts as a likely approval date. However, there is still a small chance of rejection or a delay if the regulator deems it necessary.
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