BlackRock's Validation Process Raises Eyebrows

BlackRock's Bitcoin ETF has recently been scrutinized due to claims that the firm may have pressured Coinbase to ensure all Bitcoin holdings are fully on-chain.

This development has sparked significant attention from crypto community members. Consequently, Eric Balchunas, a senior ETF analyst at Bloomberg, has shared insights into the matter.

Balchunas confirmed that BlackRock operates its blockchain node and retrieves Bitcoin balances from its wallet addresses on Coinbase Prime each night to validate the Bitcoin held by its IBIT ETF.

He mentioned that while they are willing to share this information with institutional clients upon request, they won't publish it publicly due to the risk of increased spam, which they already receive in significant volumes.

Transparency and Trust

Accordingly, Balchunas emphasized that this move is standard practice for BlackRock, which has a long history of managing ETFs across various asset classes. He noted that the firm's actions reflect its commitment to operational transparency amid growing concerns about "paper BTC."

By implementing these verification measures, BlackRock aims to address concerns about fake or unverified Bitcoin holdings by ETFs. Essentially, the diligence highlights BlackRock's desire to maintain institutional trust.

Community Reactions

The crypto community has reacted strongly to Balchunas' clarification, with some expressing skepticism about BlackRock's need to validate its Bitcoin holdings.

Notably, a prominent commentator pointed out that Bitcoin's blockchain is already public, meaning BlackRock's holdings could be verified through public tools. However, concerns about issuing "paper BTC" remain central to the debate. Some believe that BlackRock's move to run a blockchain node was intended to alleviate these fears.

"BlackRock's actions reflect its commitment to operational transparency amid growing concerns about 'paper BTC.'"

Decline in Bitcoin Inflows

Despite these assurances, there has been a noticeable flattening in Bitcoin inflows into the BlackRock ETF. After August 2024, inflows have significantly declined, with multiple days showing zero or minimal inflows. This slowing momentum raises questions about the current level of institutional interest in Bitcoin investments through ETFs.

SEC Approval and Market Response

Just days before these developments, the SEC had approved BlackRock's Bitcoin ETF options listing on Nasdaq. This approval would offer institutional investors an alternative method of gaining exposure to Bitcoin, although it has yet to show it works.