There’s been a lot of talk about whether ETFs are suppressing Bitcoin prices. Some people think they’re selling Bitcoin they don’t actually own, which is a big concern. But is this actually happening?
The “Paper Bitcoin” Myth
The idea of “paper Bitcoin” isn’t new. In the past, some exchanges have sold Bitcoin to customers without actually having it. This led to big losses for investors, like in the cases of Mt. Gox and QuadrigaCX.
However, a crypto hedge fund analyst, Fred Krueger, argues that ETFs are different. He says that ETFs, especially those managed by big financial institutions, are heavily regulated and operate under a completely different framework than those unregulated exchanges.
ETFs: Regulated and Transparent
Krueger points to two leading ETFs, IBIT and FBTC, managed by BlackRock and Fidelity respectively. He emphasizes that these institutions are subject to strict regulations, including audits and the use of third-party custodians to verify assets.
For example, IBIT uses Coinbase as a custodian, which is a publicly audited company. Both IBIT and Coinbase are audited by the SEC and other regulatory bodies. FBTC, on the other hand, uses Fidelity Digital Assets, a separate entity within Fidelity that specializes in digital asset custody.
Krueger argues that these institutions wouldn’t risk their reputation by selling Bitcoin they don’t own. He also points out that they have robust corporate governance structures and extensive internal controls.
The Facts: ETFs Hold Real Bitcoin
Krueger says that the ETFs actually hold a significant amount of real Bitcoin. IBIT holds around 403,000 Bitcoins, while FBTC holds about 185,000 Bitcoins. Together, they hold almost 3% of the world’s total Bitcoin.
He acknowledges that some people have tried to dispute these figures by analyzing Bitcoin movement between specific dates. But he insists that the facts are clear and verifiable.
Why Bitcoin’s Price Isn’t Higher
So, why hasn’t Bitcoin’s price surged more dramatically despite the significant ETF inflows?
Krueger explains that while Bitcoin’s price has increased by 60% since the introduction of ETFs, there have been substantial selling pressures from various sources. This includes sales by Germany, Mt. Gox, FTX, and the Digital Currency Group.
He speculates that if there hadn’t been all this selling, Bitcoin’s price could have been significantly higher.
Overall, Krueger’s analysis suggests that the concerns about ETFs suppressing Bitcoin prices are unfounded. He provides evidence that these ETFs are operating transparently and holding real Bitcoin. The lack of a more dramatic price surge is likely due to other factors, such as selling pressures.
