Exchange-traded fund (ETF) analysts have dispelled rumors that spot Bitcoin funds will be backed by “paper Bitcoin” or fractional reserves. Instead, they are fully backed by the asset itself, meaning issuers must increase their funds.
Rumors of support for Bitcoin exchange-traded funds have been circulating, increasing concerns ahead of the planned launch in January.
Bitcoin ETFs supported by BTC
There have been several comments suggesting that the products will not be backed by the asset but by “paper Bitcoin.” Last week, Deezy founder Danny Kroeger said:
“If Bitcoin ETFs are all about cash in, cash out, it seems like they are just paper Bitcoin, right? Probably the worst thing that can happen and lead to endless price pressure.”
Other comments suggest they may be covered by fractional reserves. Fractional reserves are the systems that banks use by holding only a fraction of the cash deposited with them.
However, on December 28, ETF Store President Nate Geraci refuted the rumors.
“Spot Bitcoin ETFs will *actually* hold the underlying Bitcoin,” he said, adding: “I’m seeing more commentary out there about ‘paper Bitcoin’.”
“The total value of the trust will be *entirely* backed by real Bitcoin. Period.”
Read more: How to Prepare for a Bitcoin ETF: A Step-by-Step Approach
Bitcoin ETF analyst James Seyffart said there are “a lot of bad Bitcoin ETF takeups.” “People are just uninformed (nice) and way too gullible,” he said, before confirming that “Spot Bitcoin ETFs will hold Bitcoin.”
In a separate post, Geraci said the next 48 hours will be “wild” with 14 potential entrants in the race as issuers have their ducks in a row.
The current potential issuers are Grayscale ARK, iShares, Bitwise, VanEck, WisdomTree, Invesco, Fidelity, Valkyrie, Global X, Hashdex, Franklin, Pando and 7RCC.
Additionally, December 29 is the final deadline set by the Securities and Exchange Commission for the filing of final filings and applications.
Ark sells Grayscale Trust Holdings
In related news, ETF analyst Eric Balchunas reported that Ark sold its entire remaining position in the Grayscale Bitcoin Trust (GBTC).
He noted that the company used half of the money, about $100 million, to purchase BITO shares. BITO is the ProShares Bitcoin Strategy ETF, the first of its kind, launched in October 2021.
Ark BITO holdings. Source: X/@EricBalchunas
“Simply, ARK is now the second largest holder of BITO, although again this is a temporary parking lot,” he said, adding that institutions generally use highly liquid ETFs for transitions like this.
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