BlackRock, the renowned asset manager in traditional finance, has recently drawn attention to potential risks associated with stablecoins for investors considering its proposed iShares Bitcoin spot exchange-traded fund (ETF). Despite BlackRock’s involvement in the crypto industry, including the pursuit of a Bitcoin spot ETF and registration of an Ethereum trust, the company now emphasizes concerns regarding stablecoin price fluctuations and their impact on the ETF’s performance.

The Instability of Stablecoins:

BlackRock’s alarm is based on the potential instability of stablecoins like Tether USD (USDT) and Circle USD (USDC), which are designed to maintain a value equivalent to a specific asset or currency, particularly the US dollar. The asset manager highlights past events that have demonstrated significant price movements in these digital assets, which can subsequently affect the value of Bitcoin. BlackRock specifically refers to incidents involving Tether on February 17, 2021, and October 15, 2021, which led to legal actions due to false claims about their reserves not being fully backed by US dollars. Consequently, Tether faced penalties and restrictions. Another incident occurred on March 10, 2023, when USDC deviated from its $1.00 peg after it was revealed that a portion of its reserves had been held at Silicon Valley Bank, which entered the Federal Deposit Insurance Corporation (FDIC) receivership. These incidents raised concerns about the stability and reliability of stablecoins.

Risks for BlackRock’s Bitcoin ETF:

While the proposed iShares Bitcoin spot ETF does not directly invest in stablecoins, BlackRock underlines that it could still be exposed to the risks created by stablecoins in the Bitcoin and other digital asset markets. The asset manager points out that indirect exposure to stablecoins could pose significant risks to investors in terms of potential volatility, operational difficulties, possible manipulative practices, and regulatory challenges associated with these assets.

Cathie Wood’s Criticism of SEC Chairman Gensler’s Stance on Bitcoin ETF:

During a recent interview with CNBC, Cathie Wood, CEO of ARK Invest, expressed confusion over SEC Chairman Gary Gensler’s position on Bitcoin ETFs. Wood noted Gensler’s extensive knowledge of the digital currency, as he had taught about Bitcoin at the Massachusetts Institute of Technology (MIT). Wood highlighted the transparent and decentralized nature of the Bitcoin network, emphasizing that all activities within the network can be closely tracked, making market manipulation highly unlikely. Wood questioned the logical reasoning behind Gensler’s hesitation to approve a spot Bitcoin ETF, suggesting that his potential concerns about the impact of Bitcoin on the US dollar, given his interest in the Treasury Secretary position, might be influencing his stance.

Awaiting SEC Decision:

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

The concerns raised by BlackRock and Cathie Wood shed light on the complex and evolving risks associated with stablecoins and the approval of Bitcoin ETFs. The prominence of stablecoin risks and the potential impact of regulation on Bitcoin ETFs highlight the necessity for investors to remain aware and informed about the underlying assets of financial products tied to digital currencies.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.