Amid the ongoing hype about the  potential approval of a spot Bitcoin ( BTC ) exchange-traded fund (ETF) in January 2024, some industry analysts have expressed concerns about some ETF-associated problems, including the issue of backing.

Josef Tětek, a Bitcoin analyst at the hardware crypto wallet firm Trezor, said in December 2023 that spot Bitcoin ETFs may take people further from self-custody and potentially create “millions of unbacked Bitcoin.”

Tětek said that such ETFs could possibly end up in so-called “paper Bitcoin” in one of the bad scenarios.

Tětek’s statement has triggered significant feedback from the community, with many considering such claims as FUD. In contrast, others raised the question of how one would be able to ensure that an ETF issuer actually holds Bitcoin for its clients. Some crypto observers noticed it would be great to see “actual on-chain addresses” published in addition to the issuers’ BTC holdings reports.

Yea so without any publishing of actual onchain addresses by any fund, they’ll hold exactly what they show you on a screen.

I can’t verify anything they say they hold.

— Sunny Po (@sunny051488) December 19, 2023

It is “unlikely” that ETF administrators would create “unbacked BTC equivalents or misrepresent their backing assets," according to David Gerard, author of the book and crypto blog Attack of the 50 Foot Blockchain.

“This is regulated finance by well-known entities, and I don't think unbacked ETF shares is a realistic threat model,” Gerard told Cointelegraph. Gerard didn’t elaborate on whether clients would be able to track BTC holdings by issuers.

Bloomberg ETF analyst Eric Balchunas compared spot Bitcoin ETFs to gold ETFs, stating that a spot BTC ETF would be very similar.

“Gold ETFs are also '33 Act grantor ETFs. They have been around for 20 years now. And every day, State Street for gold puts how many tons of gold are being held at the custodian. This will be the same thing,” Balchunas said in an interview with Cointelegraph on Dec. 28. The analyst stated:

“I can't overstate how by the book these asset managers are okay. Not only do they not want the legal trouble, they wouldn't ever want the PR blow up if they didn't actually hold the Bitcoin nor  would they totally short Bitcoin if they didn't buy it.”

Balchunas said that companies like BlackRock or Grayscale are “totally vulnerable” to Bitcoin volatility. “Let's say they just weren't buying Bitcoin, sort of like Sam Bankman-Fried style. And all these people had shares in Bitcoin,” the analyst noted, adding:

“Not only are they required, not only is there a huge track record, but it's in their best interest to hold the Bitcoin [...] They just want to provide the access and make the expense ratio which is whatever 60 basis points.”

The only thing that might not be interesting in the spot Bitcoin ETFs — in their current most-likely form of cash-create — is that the investor will not get Bitcoin back instead of cash.

“But if you're the kind of person who wants Bitcoin back, just own it directly,” Balchunas said, referring to self-custody, which is believed to be a significant part of the original vision of Bitcoin by the anonymous creator Satoshi Nakamoto .

“But anybody who owns a mutual fund or an ETF, and collectively they have like $30 trillion in assets, nobody wants to touch the underlying,” the Bloomberg ETF analyst stressed.

Despite many industry observers being confident that there’s no reason for ETF providers to misrepresent their BTC holdings in the cash-create model, others are still sure that there is a problem.

“The only way to be certain that ETFs would not lead to any paper Bitcoin claims would be if the ETF shares were redeemable for actual Bitcoin,” Tětek told Cointelegraph.

“But since the proposed ETFs are all cash in, cash out, this won't be the case, and holders will have to trust without any option to verify,” he added.

Additional reporting by Ana Paula Pereira.

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