Stablecoin Volatility Poses Threat To BlackRock's Bitcoin ETF Holdings, Filing Shows

BlackRock, the New York-based asset management giant, in the public document sent to the U.S. Securities and Exchange Commission (SEC), shared that spot Bitcoin exchange-traded fund (ETF) could be indirectly exposed to the risks of stablecoins and mentioned that its volatility impacts the price of BTC.

The document submitted by BlackRock discussed different risks related to exchange-traded funds (ETF), which included indirect exposure to stablecoins like Tether USD (USDT) and Circle USD (USDC), two of the largest stablecoins in the world.

"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," the public document read, adding, "Stablecoins are digital assets designed to have a stable value over time as compared to typically volatile digital assets, and are typically marketed as being pegged to a fiat currency, such as the U.S. dollar, at a certain value. Although the prices of stablecoins are intended to be stable, their market value may fluctuate."

BlackRock also explained that stablecoins' volatility has "apparently impacted" the value of Bitcoin and given that it is a "relatively new phenomenon," it is "impossible to know all of the risks" they could pose to players in the Bitcoin market.

Moreover, BlackRock alleged that some claimed Tether is "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, and also argue that those associated with certain stablecoins may be involved in laundering money," citing the agreement Tether made with the New York Attorney General in February 2021.

"On Feb. 17, 2021, the New York Attorney General entered into an agreement with Tether's operators, requiring them to cease any further trading activity with New York persons and pay $18.5 million in penalties for false and misleading statements made regarding the assets backing Tether," BlackRock's public document read.

Moreover, BlackRock also talked about the settlement Tether made with the U.S. Commodity Futures Trading Corporation (CFTC) in October 2021 where the stablecoin issuer paid $425 million in fines.

"On Oct. 15, 2021, the CFTC announced a settlement with Tether's operators in which they agreed to pay $42.5 million in fines to settle charges that, among others, Tether's claims that it maintained sufficient U.S. dollar reserves to back every Tether stablecoin in circulation with the "equivalent amount of corresponding fiat currency" held by Tether were untrue," the public document stated.

The SEC has a window until Nov. 17 to decide if it's going to approve some of the spot Bitcoin ETF applications with some speculating that the commission could approve all the filings within that timeframe.