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BlackRock Inc., the world’s preeminent asset manager, is drawing significant attention from the cryptocurrency market with its forthcoming US spot Bitcoin ETF. As the financial community eagerly anticipates the potential approval by the SEC, a detailed disclosure of risks associated with this ETF has come to light.

In a document submitted to regulators, BlackRock highlights various risk factors, notably pointing out indirect exposure to stablecoins like Tether USD and Circle USD.

“While the Trust does not invest in stablecoins, it may nonetheless be exposed to risks that stablecoins pose for the bitcoin market and other digital asset markets.” – BlackRock

BlackRock’s disclosure offers a primer on stablecoins, acknowledging their market value fluctuations despite being pegged to other assets or currencies. The asset management giant raises concerns about the impact of stablecoin volatility on Bitcoin prices, potentially affecting the performance of their spot ETF.

“This volatility has in the past apparently impacted the price of bitcoin. Stablecoins are a relatively new phenomenon, and it is impossible to know all of the risks that they could pose to participants in the bitcoin market.

In addition, some have argued that some stablecoins, particularly Tether, are improperly issued without sufficient backing in a way that, when the stablecoin is used to pay for bitcoin, could cause artificial rather than genuine demand for bitcoin, artificially inflating the price of bitcoin.” – BlackRock

Emphasizing the foundational role of stablecoins in the cryptocurrency ecosystem, BlackRock warns of the risks arising from their fundamental liquidity and potential for market volatility. The company specifically mentions Tether and USDC, suggesting that issues with these stablecoins could lead to significant market disturbances.

“(…) their fundamental liquidity can have a dramatic impact on the broader digital asset market, including the market for bitcoin. Because a large portion of the digital asset market still depends on stablecoins such as Tether and USDC, there is a risk that a disorderly de-pegging or a run on Tether or USDC could lead to dramatic market volatility in digital assets more broadly.” – BlackRock

BlackRock further references historical concerns regarding Tether’s USD reserves and regulatory penalties, adding to the skepticism about the stablecoin’s reliability. The asset manager also cites an incident involving Circle’s USDC, which experienced a temporary de-pegging due to banking system issues.

“While USDC is designed to maintain a stable value at 1 U.S. dollar at all times, on March 10, 2023, the value of USDC fell below $1.00 for multiple days after Circle Internet Financial disclosed that US$3.3 billion of the USDC reserves were held at Silicon Valley Bank, which had entered Federal Deposit Insurance Corporation (“FDIC”) receivership earlier that day. Stablecoins are reliant on the U.S. banking system and U.S. treasuries, and the failure of either to function normally could impede the function of stablecoins, and therefore could adversely affect the value of the Shares.” – BlackRock

In conclusion, BlackRock acknowledges that its spot Bitcoin ETF’s indirect exposure to stablecoins presents multiple risks, including volatility, operational challenges, reserve backing issues, potential for manipulative activities, and regulatory uncertainties.