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BlackRock Points Out Stablecoin Risks in Bitcoin ETF Proposal

BlackRock emphasizes the potential risks associated with stablecoins in their Bitcoin ETF proposal, highlighting the need for investor awareness.
Published on 2023-11-14

BlackRock's Concerns Over Stablecoins

BlackRock Inc., the leading global asset manager, has raised alarms about the potential risks linked to stablecoins in its iShares Bitcoin ETF proposal. Currently under review by the U.S. Securities and Exchange Commission (SEC), the firm emphasizes how stablecoin price fluctuations might affect the fund's performance.

Understanding Stablecoin Volatility

Stablecoins, like Tether USD (USDT) and Circle USD (USDC), are typically pegged to stable assets such as the U.S. dollar. Despite this, BlackRock has noted that these digital currencies can experience unpredictable price shifts, impacting Bitcoin's value in the process.

Legal and Financial Challenges

The firm's concerns are rooted in legal challenges faced by stablecoin operators. Tether's operators faced penalties and legal actions in 2021 due to misrepresentations about their reserves, leading to fines and restrictions in New York. Similarly, USDC deviated from its dollar peg in March 2023 when it was revealed that a portion of its reserves was tied up in Silicon Valley Bank, which had gone into receivership.

Implications for Bitcoin ETF Investors

BlackRock warns that these indirect exposures to stablecoins could introduce significant risks for investors in its Bitcoin ETF. These risks include potential volatility, operational challenges, manipulative practices, and regulatory hurdles. The disclosure highlights the intricate and evolving risks associated with cryptocurrency markets and stresses the importance of investor awareness about financial products linked to digital currencies.

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