Several potential issuers eyeing spot Bitcoin exchange-traded funds (ETFs) might eventually have to disclose the on-chain addresses of their underlying BTC reserves to maintain competitiveness, suggested Samson Mow, CEO of Jan3.
Mow emphasized that the most secure way for spot Bitcoin ETF issuers to safeguard their holdings would be to reveal verifiable on-chain evidence of their Bitcoin reserves. However, he noted that none of the 14 current applicants have committed to providing such on-chain proofs, raising concerns among cryptocurrency observers about the authenticity of these ETFs' underlying holdings. There's apprehension that these spot Bitcoin ETFs might potentially create "millions of unbacked BTC."
Industry experts like Bloomberg ETF analyst Eric Balchunas highlighted that it's in the best interest of ETF issuers to hold actual Bitcoin, as not doing so might damage their reputation and trustworthiness. Leah Wald, the co-founder and CEO of Valkyrie, suggested that investors could verify an issuer's Bitcoin holdings by examining the ETF provider's public records. She stressed that regulators closely monitor underlying asset holdings, and investors can also track on-chain and off-chain fund flows for more technical validation.
The controversy over underlying holdings stems from the lack of transparency in some spot Bitcoin ETF applicants. Grayscale Investments, for instance, declined to disclose addresses citing security reasons, stating that they refrain from making on-chain wallet information public. Mow acknowledged that while regulations are stringent, some issuers might potentially violate rules, allowing the creation of an "unbacked" spot Bitcoin ETF.
Mow emphasized transparency as a pivotal competitive factor in the spot Bitcoin ETF race. He predicted that as competition intensifies, ETFs aiming for transparency and reliability might disclose their addresses to gain a competitive edge. With U.S. securities regulators expected to approve the first spot Bitcoin ETFs in early January, analysts predict fierce fee competition, with issuers like Invesco and Galaxy waiving fees for initial assets under management. While the consensus leans heavily towards an approval before January 10, there's a slight chance of delay if regulators seek more time—a scenario termed a "decade of drag" by analysts.
