BlackRock’s ETF Amendment Addresses Investor Concerns Over Coinbase’s Bitcoin Custody Practices

BlackRock, the world's largest asset manager, has taken significant steps to address growing investor concerns regarding its Bitcoin Exchange-Traded Fund (ETF). This comes after widespread uncertainty over Coinbase’s onchain settlement practices. The asset management giant's actions have repeatedly helped maintain Bitcoin's (BTC) price stability, as highlighted by Bloomberg’s senior ETF analyst.

On September 16, BlackRock filed an amendment with the U.S. Securities and Exchange Commission (SEC) to modify its Bitcoin ETF structure. According to the filing, the amendment requires Coinbase, the ETF’s custodian, to process BTC withdrawals within 12 hours. This move is a response to investor demand for more transparency in the handling of Bitcoin ETFs.

BlackRock stated in the official filing: “Subject to confirmation of the foregoing required minimum balance, Coinbase Custody shall process a withdrawal of Digital Assets from the Custodial Account to a public blockchain address within 12 hours of obtaining an Instruction from Client or Client’s Authorized Representatives.”

This action was taken in response to a surge of concerns from investors questioning Coinbase’s custodial practices. The issue arose as Coinbase currently serves as the custodian for 10 out of the 11 spot Bitcoin ETFs and eight of the nine recently approved Ether (ETH) ETFs in the United States.

These concerns were further fueled when, over the past three months, Bitcoin prices have shown stagnation despite increased institutional inflows into Bitcoin ETFs. Many investors began to suspect that Coinbase might be purchasing "paper BTC," or Bitcoin IOUs, for ETF issuers, which they believed could be contributing to the suppressed Bitcoin price.

Brian Armstrong, Coinbase’s co-founder and CEO, addressed these concerns on September 14 through a post on X (formerly Twitter). He reassured investors that all ETF transactions are settled onchain, even though Coinbase doesn’t publicly share all ETF addresses. Armstrong also highlighted that the company undergoes annual audits by Deloitte, emphasizing their commitment to transparency. He wrote, "If you want audits, Deloitte audits us annually, we’re a public company. I doubt our institutional clients want people dusting all their addresses, and it’s not our place to share for them. This is what it looks like if you want a bunch of institutional money to flow into Bitcoin."

The situation intensified in August when Coinbase hinted at developing a new Wrapped Bitcoin (wBTC) named Coinbase BTC (cbBTC), sparking even more questions about its custodial practices.

Ultimately, BlackRock’s amendment aims to enhance transparency and maintain investor confidence, reinforcing the company’s commitment to ensuring that the Bitcoin ETFs operate with integrity and that all transactions are conducted efficiently and transparently. This step could set a precedent for how custodians manage and report Bitcoin assets within ETFs, especially as institutional interest in cryptocurrency continues to grow.