Asset manager BlackRock has filed an amendment of the custody agreement for its spot Bitcoin exchange-traded fund (ETF) with the Securities and Exchange Commission. According to the SEC filing dated September 16, Coinbase would now have to process withdrawals within 12 hours of getting instructions from an investor.
Although BlackRock did not specify the reasons for its amendment, it follows the widespread concerns in the crypto community about Coinbase on-chain settlement practices for the ETFs. The timing shows that the asset manager wants to ensure that the underlying assets for its ETFs are fully backed.
The filing said:
โSubject 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 Clientโs Authorized Representatives.โ
With BlackRock making the first move, other ETF issuers might amend their custody agreements to reduce the settlement period. Coinbase is the custodian for 10 of the 11 spot Bitcoin ETFs and eight of the nine spot Ether ETFs, making its custody practices a major concern for several industry participants.
Coinbase CEO debunks concerns about custody practices
Meanwhile, Coinbase CEO Brian Armstrong debunked concerns on Crypto Twitter about its custody practices. In response to a now-deleted post by the pseudonymous Tyler Durden, Armstrong claimed it ultimately settles all ETF mints and burns on-chain after institutional clients have used the trade financing and OTC options.
He added that all settlements happen in the Coinbase Prime vaults within one business day, the standard practice for institutional clients. However, the CEO also hit back at those requesting that it publicly share all its vault addresses for verification purposes.
He said:
โIf you want audits, Deloitte audits us annually, weโre a public company. I doubt our institutional clients want people dusting all their addresses, and itโs not our place to share for them.โ
However, his claims of being audited by Deloitte did not sit well with many in the crypto community, who noted that the exchange only asks investors to trust its reserves without verification. While some, including Credibly Neutral VC co-founder Viktor Bunin, believe that Coinbase being a public company ensures that it cannot end up like FTX, not everyone shares this view.
Kraken exchange founder Jesse Powell noted that being a public company could not have prevented FTX because there are also sham public companies. He added that FTX also passed traditional audits, and the best thing is proof of reserves showing the exchange has a reserve matching all its assets at a 1:1 ratio.
IBIT records only one day of inflow in 13 days
Meanwhile, BlackRock Bitcoin ETF (IBIT) has had a relatively inactive month, according to ETF flow data from Farside Investors. Over the last 13 days, the fund recorded an outflow of $9.1 million on September 9 and an inflow of $15.8 million on September 16. Beyond those two days, it has had zero flows between September 4 and 20.
Although zero flows are not uncommon for ETFs, the four days of consecutive zero flows twice in two weeks suggest that recent concerns about custody might have gotten to investors, leading some to slow down on their exposure. With BlackRock now amending its custody agreement, investors will likely return to the leading spot Bitcoin ETF.
Additional reporting by Noor Bazmi
