These three risks have weighed on Bitcoin since spot ETFs were approved

Despite the euphoria surrounding these new products, experts point to “unexpected” risks for the cryptocurrency queen.

The 11 spot bitcoin ETFs approved by the US exchange watchdog could create three “unexpected” risks in the market, The Block suggests. We remind you that 11 asset managers (incl Black stoneFidelity and Invesco) applied for spot bitcoin ETFs during 2023. While the SEC has only approved bitcoin futures ETFs since 2021, 11 spot bitcoin ETFs all were verified on January 10.

An ETF (or Exchange Traded Fund) is an exchange-traded index fund that tracks the performance of a stock index (or one or more financial or physical assets such as gold) by replicating both increases and decreases in value. the price of that index (or those assets).

Coinbase, the ubiquitous player

The products, which were listed on Wall Street for two days last week, saw a cumulative trading volume of more than $7 billion.

But three threats loom. First, some experts point to the risk of concentration of bitcoins in the hands of the main depository, 9 spot bitcoin ETFs (including Blackrock), which have chosen the cryptocurrency exchange platform Coinbase to hold their clients’ bitcoins. There are two concerns: Coinbase could make mistakes and lose customers’ bitcoins, but also the United States could come knocking on Coinbase’s door to confiscate the bitcoins… although that scenario is unlikely at this stage.

Another potential issue concerns the “funding” of Bitcoin. In effect, investors using spot bitcoin ETFs will not own their bitcoins, but the product that represents the value of bitcoin. These products will create an “IOU” against Bitcoin, explains Lopp de Casa, co-founder of Bitcoin management company Casa.

“Because you can’t verify the company’s balance sheet, you can’t be sure that your IOU is exchangeable for the asset it represents,” he says.

Bitcoin management

Finally, some experts worry about the influence of asset managers on the governance of the Bitcoin blockchain. “The ETF issuers will certainly try to make changes, but it doesn’t matter,” said Jeffrey Ross, founder and chief executive of asset management firm Vailshire Capital.

“They will probably try to move to proof of stake or change the fixed supply of bitcoins, but there is almost no chance that real bitcoiners will allow that,” he added.

Most asset managers have explained in their spot bitcoin ETF filings that they would not position if the bitcoin blockchain “forked” (see our filing to learn all about this). In other words, they assure to remain technology neutral.

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