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BlackRock flags stablecoin exposure risks for Bitcoin ETF

Published Nov 14, 2023 10:13AM ET
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NEW YORK - BlackRock Inc (NYSE:BLK)., the world's largest asset manager, has highlighted potential risks associated with stablecoins for investors in its proposed iShares Bitcoin ETF. The firm, currently waiting for the U.S. Securities and Exchange Commission's (SEC) review of its ETF, pointed out that fluctuations in stablecoin prices could impact the performance of the fund.

Stablecoins like Tether USD (USDT) and Circle USD (USDC) are designed to maintain a value equivalent to a specific asset or currency, typically the U.S. dollar. However, BlackRock noted that despite their intended price stability, past events have shown that these digital assets can still experience significant price movements, which in turn can affect Bitcoin's value.

The concerns stem from incidents involving Tether's operators on February 17, 2021, and October 15, 2021. They faced legal actions due to false claims about their reserves not being fully backed by U.S. dollars. As a result of these legal issues, Tether was ordered to stop engaging with New Yorkers and incurred penalties totaling $61 million.

More recently, on March 10, 2023, USDC experienced a deviation from its $1.00 peg when Circle Internet Financial revealed that a portion of its reserves amounting to $3.3 billion had been held at Silicon Valley Bank after it went into FDIC receivership. This incident raised concerns about the stability and reliability of stablecoins.

BlackRock has concluded that such indirect exposure to stablecoins could pose significant risks to investors in its Bitcoin ETF due to potential volatility, operational difficulties, possible manipulative practices, and regulatory challenges. The disclosure by BlackRock underscores the complexity and evolving nature of risks in the cryptocurrency market and highlights the need for investor awareness regarding the underlying assets of financial products tied to digital currencies.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

BlackRock flags stablecoin exposure risks for Bitcoin ETF
 

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