BlackRock Responds to Investor Concerns by Asking Coinbase to Speed Up Withdrawals
3 min readBlackRock has amended its contract with Coinbase in response to growing investor concerns about the transparency and security of its Bitcoin exchange-traded fund (ETF). BlackRock now requires Coinbase Custody to process Bitcoin withdrawal requests within 12 hours.
The move is aimed at allaying investor concerns about Coinbase’s on-chain trading by BlackRock, the world’s largest asset manager, with a focus on transparency of proof of reserves.
BlackRock Demands Coinbase to Expedite Withdrawal Requests
On September 16, BlackRock filed an ETF amendment with the U.S. Securities and Exchange Commission (SEC) , disclosing new contract terms for Bitcoin withdrawals related to ETF products.
Under the amendment, Coinbase, the custodian of BlackRock ETF assets, would be required to process Bitcoin withdrawal requests to public blockchain addresses within 12 hours of receiving instructions from a customer or authorized representative.
The purpose of the contract change is to reassure investors that their assets are being properly managed and that there will be no undue delays in accessing their Bitcoin assets.
In the amendment, BlackRock emphasized:
“Subject to meeting minimum balance requirements, Coinbase Custody must process digital asset withdrawal requests from a Custody Account to a public blockchain address within 12 hours of receiving instructions from a Customer or Customer’s authorized agent.”
Investor Concerns Rise: Is Coinbase Really Transparent?
The call for improved transparency and faster withdrawals has been fueled by speculation that Coinbase may be purchasing Bitcoin IOUs, or “paper Bitcoin,” on behalf of a Bitcoin ETF issuer.
The sluggish Bitcoin price over the past three months has led many investors to question the integrity of the Bitcoin ETF system and Coinbase’s role as primary custodian for these investment products.
Investor concerns were compounded in August when Coinbase announced the development of a new wrapped Bitcoin (WBTC), aka Coinbase BTC (cbBTC).
Some investors were concerned that this may have been related to an IOU (borrowing) system rather than actual bitcoin.
As various allegations surfaced, Coinbase CEO Brian Armstrong took to social media to clarify his position on the various claims.
On September 14, Armstrong posted to X:
“This is what happens when you want institutional money to flow into Bitcoin.”
Baldilocks here.
Not sure what this is all about TBH. All ETF mints and burns we process are ultimately settled onchain. Institutional clients have trade financing and OTC options before trades are settled onchain. This is the norm for all our institutional clients. All funds…
— Brian Armstrong (@brian_armstrong) September 14, 2024
Armstrong’s statement made clear that all ETF trades are ultimately processed on-chain.
However, Coinbase was reluctant to disclose all ETF wallet addresses due to confidentiality provisions with institutional clients.
Armstrong also reassured investors that Coinbase conducts regular audits and operates transparently and within regulatory boundaries to the standards expected of a publicly traded company.
According to Dune Analytics, BlackRock’s iShares Bitcoin Trust (IBIT) has over 38% of the total Bitcoin ETF market, with on-chain Bitcoin holdings exceeding $22.5 billion.
Overall, Bitcoin ETFs have purchased over $59.2 billion in assets, showing growing demand for Bitcoin from institutional investors.
Bloomberg senior ETF analyst Eric Balchunas also dismissed conspiracy theories linking Bitcoin’s recent price decline to ETF activity in a September 15 post, instead pointing out that investors who originally held Bitcoin were the main sellers.
He added:
“All ETFs and BlackRock have done is repeatedly save the Bitcoin price from the abyss.”
The launch of the ETF has brought significant institutional investment funds into the Bitcoin market, with 75% of new investment coming from institutions in early 2024.
People been tagging me and @JSeyff in tweets about this today. Our official response: https://t.co/QqNPiVCrZQ pic.twitter.com/XVZ912k0tX
— Eric Balchunas (@EricBalchunas) September 14, 2024
However, with the increasing interest of large asset management companies such as BlackRock, there is also increasing pressure from investors who want to ensure that their investments are kept safely and demand greater transparency.
