BlackRock, the leading asset manager in traditional finance, has highlighted potential risks associated with stablecoins for investors considering its proposed iShares Bitcoin spot exchange-traded fund (ETF). 

Despite BlackRock’s significant involvement in the crypto industry, such as pursuing a Bitcoin spot ETF and registering an Ethereum trust, it now emphasizes concerns regarding the impact of stablecoin price fluctuations on the ETF’s performance. 

According to recent reports, the asset manager points out the potential instability of stablecoins like Tether USD (USDT) and Circle USD (USDC), designed to maintain a value equivalent to a specific asset or currency, typically the US dollar.

BlackRock highlights that past events have shown that these digital assets can experience significant price movements, which in turn can affect the value of Bitcoin. The concerns stem from incidents involving Tether’s operators on February 17, 2021, and October 15, 2021, where legal actions were taken due to false claims about their reserves not being fully backed by US dollars. As a result, Tether faced penalties and restrictions. 

Additionally, on March 10, 2023, USDC experienced a deviation from its $1.00 peg when it was revealed that a portion of its reserves had been held at Silicon Valley Bank after it went into the Federal Deposit Insurance Corporation (FDIC) receivership. This incident raised concerns about the stability and reliability of stablecoins. Blackrock states:

While the Trust does not invest in stablecoins, it may nonetheless be exposed to the risks that stablecoins pose for the bitcoin market and other digital asset markets. 

BlackRock concludes that indirect exposure to stablecoins could pose significant risks to investors in its Bitcoin ETF, considering the potential volatility, operational difficulties, possible manipulative practices, and regulatory challenges associated with stablecoins. 

The disclosure by BlackRock emphasizes the complex and evolving nature of risks in the cryptocurrency market, highlighting the importance of investor awareness regarding the underlying assets of financial products tied to digital currencies.

During a recent interview with CNBC, Cathie Wood, the CEO of ARK Invest weighed in on the current state of approvals for Bitcoin ETFs by the US Securities and Exchange Commission (SEC). 

Wood expressed confusion over SEC Chairman Gary Gensler’s stance on bitcoin ETFs, given his extensive knowledge of the digital currency, noting that he taught about BTC at the Massachusetts Institute of Technology (MIT).

Wood highlighted the decentralized and transparent nature of the Bitcoin network, emphasizing that all activity can be closely tracked. She argued that these characteristics make it highly unlikely for the market to be manipulated. 

Given the inherent transparency and accessibility of the Bitcoin ecosystem, Wood questioned the logical reasoning behind Gensler’s hesitation to approve a spot Bitcoin ETF.

To understand Gensler’s perspective, Wood speculated that Gensler’s interest in the Treasury Secretary position, which focuses on the stability of the US dollar, might be influencing his stance on Bitcoin ETFs. 

Wood suggested that Gensler’s potential concerns about the impact of Bitcoin on the dollar could be a factor in his reluctance to approve the ETFs.

The SEC has received multiple applications for Bitcoin ETFs, but none have been approved thus far. Market participants and investors have been eagerly awaiting the SEC’s decision, as introducing a Bitcoin ETF would provide more accessible and regulated exposure to the cryptocurrency market.

Featured image from Shutterstock, chart from TradingView.com 

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