BlackRock Validates Bitcoin ETF with Node as Coinbase Faces Transparency Questions

• BlackRock confirms operating a Bitcoin node to validate $IBIT holdings, enhancing transparency for institutional investors.
• Coinbase must process Bitcoin withdrawals within 12 hours after BlackRock’s SEC amendment, addressing custody concerns.
• On Sept 23, BlackRock’s $IBIT ETF saw $11.54M inflows, while Grayscale’s GBTC experienced a $40.33M outflow amidst market shifts.

BlackRock has confirmed that it runs its own Bitcoin node to validate holdings for its spot Bitcoin ETF. According to Bloomberg Senior ETF Analyst Eric Balchunas, the financial giant operates the node to verify the Bitcoin balances associated with its ETF, known as $IBIT. 

The confirmation comes amid growing concerns about the transparency of Bitcoin-related funds, particularly in the wake of Coinbase custody practices. BlackRock reassured clients that it uses its node to track balances on the blockchain, pulling data every night from wallet addresses stored with Coinbase Prime. Institutional clients can request to view the wallet balances and addresses.

Institutional Transparency and Client Requests

BlackRock’s move aims to increase transparency for institutional investors. While the company is open to sharing its wallet balances with clients, it has chosen not to make the addresses publicly available. This decision is driven by the risk of attracting spam or unwanted attention. 

According to Eric Balchunas, BlackRock is cautious about exposing its addresses due to potential spam from sources like sanctioned Bitcoin or non-fungible tokens (NFTs). The decision to withhold public disclosure aligns with the firm’s long-standing approach to managing its 500-plus ETFs.

Addressing Paper Bitcoin Concerns

Last week, BlackRock filed an amendment request with the U.S. Securities and Exchange Commission (SEC), requiring Coinbase to process Bitcoin withdrawals within 12 hours of receiving instructions. This change was in response to speculation surrounding Coinbase’s custody of Bitcoin. 

Concerns had emerged over the possibility of Coinbase acquiring “paper Bitcoin,” sparking debate about the authenticity of Bitcoin held by ETFs. Despite these rumors, Balchunas dismissed speculation that recent Bitcoin price trends were tied to the U.S. Bitcoin spot ETF market.

Spot ETF Inflows and Market Trends

On September 23, the total net inflow of Bitcoin spot ETFs was reported at $4.56 million. However, only two of the ten ETF issuers experienced positive inflows, with BlackRock’s $IBIT ETF recording $11.54 million. 

Other notable inflows included Fidelity’s FBTC ETF, which saw $24.93 million. Grayscale’s GBTC ETF, on the other hand, recorded a significant outflow of $40.33 million. Notably, these trends come amidst fluctuating inflows across the U.S. spot ETF market, despite a resilient U.S. economy, particularly within the services sector.