As a seasoned analyst with over two decades of experience in the financial industry, I’ve seen my fair share of market manipulations and shady practices. The concerns surrounding “paper Bitcoin” associated with ETFs have been a recurring theme that I’ve followed closely, given my past encounters with unscrupulous players in the crypto space.
In a recent YouTube video named “No Real Bitcoin in Proposed US ETFs,” investor Fred Krueger from 2718.fund explored the escalating worries related to Bitcoin Exchange-Traded Funds (ETFs) in the United States and their potential influence on Bitcoin’s value. Krueger aimed to alleviate concerns about “synthetic Bitcoin” – the belief that ETFs could be trading Bitcoin they don’t actually own – and clarify why Bitcoin’s price hasn’t skyrocketed as much as anticipated, despite substantial ETF buy-ins.
As an analyst, I embarked on my analysis by recognizing the widespread doubt in the crypto market. “With all this digital currency like Bitcoin, and ETFs seemingly lacking the actual Bitcoin, it’s perplexing that they aren’t buying up all this Bitcoin if they exist, and yet the price isn’t soaring?” This was the essence of the concerns shared by many investors.
Historically, the term “paper Bitcoin” has been linked to trading platforms that sold Bitcoins to buyers without owning the real assets themselves. Krueger pointed out numerous notable cases in which such practices resulted in substantial financial losses for investors. He mentioned the example of Mt. Gox as one such instance.
An additional instance given was QuadrigaCX, a Canadian cryptocurrency platform that shut down under unusual circumstances. The founder, Gerald Cotten, is said to have passed away in India, holding the exclusive keys to the exchange’s cold wallets, thus securing customer Bitcoin funds beyond reach. Krueger pointed out, “Many Canadians lost their Bitcoin on this Quadriga platform.
Are “ETF Paper Bitcoin” Real?
The past occurrences have sparked concerns about ETFs potentially engaging in similar activities, such as selling Bitcoins they don’t own, which could artificially decrease Bitcoin’s price. However, Krueger contends that ETFs, especially those managed by reputable financial institutions, operate under a distinct and regulated system compared to unregulated trading platforms.
Krueger underscored that both the IBIT (BlackRock ETF) and FBTC (Fidelity ETF) are under rigorous regulatory supervision, which extends beyond the SEC to other American agencies. He explained this oversight encompasses stringent transparency regulations, frequent audits, and the need for third-party custodians to verify assets, requiring them to obtain a receipt from these custodians.
Regarding IBIT, it’s important to mention that Coinbase takes on the role as the external custodian for this platform. As a publicly-traded company, Coinbase undergoes audits, which adds an extra layer of examination and responsibility. The public status of Coinbase contributes to increased scrutiny. Notably, both IBIT and Coinbase are subject to audits by regulatory bodies like the SEC. On the other hand, FBTC employs Fidelity Digital Assets for custody services. This division of Fidelity is dedicated specifically to managing digital assets, providing specialized oversight and care.
According to Krueger, the entities responsible for IBIT and FBTC are BlackRock and Fidelity, two highly established financial giants, who have a significant investment in preserving their stellar reputation. He underscored that this is no trivial matter for them, implying that these institutions would be unlikely to jeopardize their credibility by peddling fictitious Bitcoins.
Krueger emphasized the vast differences between BlackRock and companies like QuadrigaCX by highlighting their contrasting levels of regulatory compliance and operational size. In simpler terms, he pointed out that while BlackRock is heavily regulated, it also has a strong corporate structure with committees for audit, risk management, and compliance, as well as extensive internal controls.
In my research, I’ve found it crucial to clarify misconceptions about Bitcoin ETFs holding “paper Bitcoin.” To set the record straight, Krueger emphasized that no ETF actually holds “paper Bitcoin.” Instead, he pointed out that the Interactive Brokers Bitcoin Trust (IBIT) and the FutureBitcoin ETF (FBTC) hold real Bitcoins. Specifically, IBIT holds roughly 403,000 actual Bitcoins, while FBTC holds approximately 185,000 actual Bitcoins. Adding these amounts together shows that these two ETFs account for almost 3% of the world’s total Bitcoin supply, or around 588,000 Bitcoins (approximately 2.9%).
Krueger acknowledged that some critics have tried to scrutinize Bitcoin transactions within certain timeframes to dispute these holdings. However, he underlined the fact that the information is transparent and provable. “We can ascertain exactly how much Bitcoin these ETFs possess,” he stated emphatically. “Its accountability is a proven fact.
Krueger provided a thoughtful response when asked why Bitcoin’s price hasn’t skyrocketed as much as expected following ETF launches. He pointed out that Bitcoin has actually risen by 60% since the introduction of these ETFs, which equates to an impressive $600 billion increase in market value. This surge was primarily driven by around $20 billion in net investments into the ETFs, leading to a price amplification effect approximately 30 times over. In his view, this growth rate is roughly average, though slightly lower than usual but not unusually low.
Krueger attributed the relatively slow growth in Bitcoin’s price to intense selling activity from multiple parties. Essentially, he said there has been significant selling, which he elaborated on by mentioning that Germany sold approximately $3 billion in Bitcoin, Mt. Gox also held some Bitcoin, FTX disposed of its GBTC shares earlier this year, and the Digital Currency Group (DCG) liquidated assets to deal with lawsuits. In summary, Krueger stated that there was a lot of selling happening.
Krueger proposed that, without the current selling pressures, Bitcoin’s value might have risen substantially higher, perhaps even reaching around $90,000. In his view, these selling forces are a significant factor keeping the price lower than it potentially could be.
At press time, BTC traded at $68,752.
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2024-10-29 01:35