BlackRock Amends Bitcoin ETF

BlackRock, the world’s largest asset manager, has filed an amendment for its Bitcoin ETF (IBIT) in response to growing concerns over Coinbase's custodial practices. Investors have raised questions about the transparency of Coinbase's handling of Bitcoin, prompting demands for on-chain proof that all ETF-related transactions are settled properly.

In a recent SEC filing, BlackRock requested that Bitcoin withdrawals from Coinbase be processed within 12 hours. This amendment comes after investors expressed concerns about the use of "paper BTC" or Bitcoin IOUs. Coinbase CEO Brian Armstrong reassured investors, stating that all ETF-related transactions are settled on-chain within one business day. He further explained that institutional clients have the option of using trade financing before trades are finalized on-chain.

Despite significant inflows into Bitcoin ETFs, Bitcoin’s price has remained stagnant, leading to speculation that Coinbase might be handling ETF-related Bitcoin purchases off-chain, thus affecting the price. However, Armstrong and other industry figures have stressed that all transactions are handled transparently on-chain.

BlackRock's decision to modify its ETF framework is aimed at addressing liquidity and enhancing operational transparency. Tron founder Justin Sun had previously criticized Coinbase for not providing proof of reserves, warning it could pose risks for Bitcoin. Despite these concerns, ETF analyst Eric Balchunas emphasized that Bitcoin ETFs have helped stabilize the market.

Since its launch in January, BlackRock’s IBIT has become the top-performing Bitcoin ETF, holding over 38% of the market share and managing $22.5 billion in assets. Coinbase plays a critical role, providing custody services for the majority of Bitcoin and Ethereum ETFs. This central role has raised concerns about its dominance, with critics pointing out that Coinbase’s position makes it a potential single point of failure.

Beyond concerns about custodial practices, Coinbase also faces potential security risks. As the leading custodian for Bitcoin ETFs, it could become a target for external threats, such as North Korean hackers. Despite these challenges, Coinbase remains a key player in institutional Bitcoin investment, controlling a substantial portion of the US spot trading market.

BlackRock’s amendment is part of ongoing efforts to reassure investors and ensure the transparency of its Bitcoin ETF operations, as institutional demand for Bitcoin exposure continues to grow.