BlackRock’s Bitcoin ETF Under Scrutiny for Collateral and Coinbase Practices

BlackRock, the world's largest asset manager, has drawn significant attention with its proposed Bitcoin ETF, particularly regarding its use of Coinbase for verifying Bitcoin reserves. With over $9 billion in assets under management, BlackRock’s involvement in the cryptocurrency space is being closely monitored, especially as the company leverages Coinbase Prime to ensure the ETF is adequately collateralised.

Eric Balchunas, a senior ETF analyst at Bloomberg, revealed that BlackRock operates its own blockchain node and checks Bitcoin balances from wallet addresses at Coinbase Prime each night. These checks aim to confirm that the Bitcoin reserves are sufficient to back the ETF, enhancing transparency for institutional investors. However, BlackRock has opted not to publicly release this data, potentially to avoid unsolicited transactions, such as sanctioned Bitcoin and NFTs, which could disrupt the system.

Balchunas emphasised BlackRock’s solid reputation and long history in managing over 500 ETFs with various custodians, reassuring investors of its operational integrity. He likened this process to a highly professional operation, far removed from the collapse of entities like FTX.

Read more: U.S. SEC approves BlackRock Bitcoin spot ETF options to list on Nasdaq

Concerns Rise Over Coinbase’s cbBTC Amidst BitGo’s Efforts to Distance from Justin Sun's Influence

Meanwhile, investor concerns have arisen over Coinbase’s cbBTC token, a wrapped Bitcoin product designed for trading between different blockchain networks while maintaining a 1:1 reserve of Bitcoin. Skepticism was sparked by Coinbase’s user terms, which included a clause stating that in the event of a loss, users would only receive a “proportional share” of their assets rather than full compensation.

This controversy over cbBTC comes amid growing unrest around BitGo’s Wrapped Bitcoin (WBTC) and its recent deal with Tron founder Justin Sun. BitGo has worked on a multi-jurisdictional agreement to handle asset custody, seeking to reduce Sun’s influence on the project as its developers push for more independence.

Read more: BlackRock to List iShares Ethereum Trust on Brazil’s B3 Exchange

Conclusion

BlackRock’s Bitcoin ETF is under increased scrutiny due to its use of Coinbase and potential issues with the cbBTC token. Although BlackRock’s history suggests robust operational controls, questions about collateral management and wrapped Bitcoin products continue to raise concerns among investors.