- BlackRock has adjusted its agreement with Coinbase, requiring Bitcoin withdrawals for its Bitcoin ETF to be settled on a public blockchain address within 12 hours.
- The crypto community expressed doubts about Coinbase’s transparency, especially regarding their synthetic Bitcoin product, cbBTC.
- Some believe it is a “paper version” of Bitcoin, raising fears of price manipulation and lack of true Bitcoin backing.
- Coinbase CEO Brian Armstrong addressed the concerns, stating that all transactions are settled on-chain and that cbBTC involves trusting a centralised custodian.
BlackRock, the largest asset manager in the world has made adjustments in its amended agreement with Coinbase.
The firm now requests Coinbase Custody to settle Bitcoin (BTC) withdrawals to a public blockchain address within twelve hours of receiving instructions from the iShares Bitcoin Trust ETF (IBIT) or its authorised representatives.
Related: BlackRock Cites Runaway US Debt, Touts Bitcoin as a Viable Solution
Don’t Trust, Verify
The news caused quite a stir on social media. There is a lot to unpack, so let’s start with the main concern, which is paper Bitcoin.
Paper Bitcoin is a term referring to instruments or derivatives that claim to represent BTC ownership without actually holding the real asset. That’s problematic because, in this context, it would mean the BTC in the IBIT trust is not fully backed by actual BTC but instead relies on many other financial instruments to track BTC’s price.
This is concerning not only for IBIT investors but for crypto as a whole due to the importance of true ownership and transparency, i.e., don’t trust, verify. Anyway, the fear is that as Bitcoin ETFs and other institutional products gain popularity, they might introduce more “paper Bitcoin” into the market. This could distort the actual supply-demand dynamics and impact Bitcoin’s market value.
Paper Bitcoin rumours started after the crypto community, with the help of public figures and founders in the space, began questioning the transparency—or lack thereof—of cbBTC, a synthetic Bitcoin product by Coinbase, which hit US$100M (AU$146.1M) on its first day of launch.
This cbBTC is what the community called the paper version of BTC, claiming that Coinbase has been issuing letters of debt instead of backing IBIT with Bitcoin, therefore manipulating BTC’s price, which is a concern investors have had on their minds due to Bitcoin’s volatility in the last two months or so.
So, BlackRock’s recent amendment ensures that the firm’s ETF can be backed by BTC that’s quickly accessible. This is a step to mitigate concerns surrounding paper Bitcoin.
Further, Bloomberg Senior Analyst Eric Balchunas says this is not as controversial as some people are making it out to be, because these types of amendments are common practice in the ETF industry—especially with newly launched products. He also refuted the allegations against Coinbase, stating that BlackRock would “flip out” if Coinbase were speculating with its funds.
Coinbase CEO Brian Armstrong did try to clarify the situation by saying that all mints and burns are “ultimately” settled on-chain.
“As for cbBTC yes you’re trusting a centralized custodian to store the underlying BTC – we’ve never claimed otherwise,” Armstrong said.
Related: SEC Approves Options Trading for BlackRock BTC ETF, Here’s Why That’s Bullish
Armstrong also gave advice to balding men, stating that high testosterone is the answer to avoid hair loss.
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