Bitcoin ETF race will push issuers to disclose addresses — Samson Mow

Some issuers of potential spot Bitcoin (BTC) exchange-traded funds (ETF) will eventually have to disclose the on-chain addresses for the underlying BTC to compete with other issuers, according to one industry activist.

Disclosures of verifiable on-chain proofs showing Bitcoin reserves would be the best option for spot Bitcoin ETF issuers to ensure their holdings, according to Jan3 CEO Samson Mow. But none of the existing 14 applicants have been working to provide on-chain proofs, Mow said in an interview with Cointelegraph on Dec. 28.

Some cryptocurrency observers have been skeptical about the underlying holdings of a spot Bitcoin ETF, with certain executives even suggesting that a spot Bitcoin ETF could potentially create “millions of unbacked BTC.”

Experts like Bloomberg ETF analyst Eric Balchunas responded that holding actual Bitcoin would be in the “best interest” of ETF issuers because not doing so could mean they lose reputation and trust.

According to Valkyrie co-founder and CEO Leah Wald, investors will be able to verify whether issuers of a spot BTC ETF actually hold Bitcoin by looking at regular publicly available records from the ETF provider. “In theory, it should be no different than verifying an equity ETF holds shares of the equity names it claims to invest in via the fund holdings,” Wald told Cointelegraph, adding that many regulators will monitor the underlying asset holdings.

“For the more technical Bitcoiner, they can also look at the fund flows on and off-chain,” the Valkyrie CEO noted.

Addressing the question of the underlying holdings of a spot Bitcoin ETF, skeptics have argued that such assets are not verifiable until there is on-chain proof from issuers. However, some spot Bitcoin ETF applicants like Grayscale Investments have refused to disclose addresses in the past, citing security concerns.

“Due to security concerns, we do not make such on-chain wallet information and confirmation information publicly available through a cryptographic Proof-of-Reserve, or other advanced cryptographic accounting procedure,” Grayscale wrote on X (formerly Twitter) in November 2022.

Related: Spot Bitcoin ETFs could ‘completely destroy’ Bitcoin: Arthur Hayes

According to Mow, a situation where an issuer creates an “unbacked” spot Bitcoin ETF is hypothetically possible should the issuer violate the rules. He said:

“Technically, it should not be possible for an ETF to issue unbacked shares as they are tightly regulated, but regulation doesn’t necessarily mean that issuers play by the rules.”

Despite admitting the probability of some issuers playing against the rules, Mow believes that transparency will be one of the most important competitive aspects of the spot Bitcoin ETF race. The Jan3 CEO stated:

“As the ETF arms race escalates, I believe we will see one or more funds disclose their addresses in a bid to be viewed as the most transparent and reliable issuer.”

Securities regulators in the United States are widely expected to approve the first spot Bitcoin ETFs in early January, with most analysts targeting Jan. 10 as the day when the first approvals happen. Some ETF experts like Nate Geraci have predicted that spot Bitcoin ETF issuers will face an “absolutely brutal” fee competition, as various issuers like Invesco and Galaxy would be waiving fees for the first six months and for first $5 billion in assets.

According to Balchunas and his fellow ETF analyst James Seyffart, there’s a 90% chance that the United States Securities and Exchange Commission will approve a spot Bitcoin ETF by Jan. 10. The analysts believe that there’s a small chance that the ETFs could be rejected once more, but they say that’s only in the case that the regulator wants more time – thought ththe “rug pull of a decade.”

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