This arrangement allows BlackRock to borrow Bitcoin, including for short-selling, without proving a 1:1 holding ratio.
BlackRock’s Off-Chain Bitcoin Borrowing Raises Transparency Issues
This method offers several advantages, including increased transaction speed and reduced fees. However, it also brings about transparency concerns, particularly regarding large-scale transactions involving significant market players like BlackRock.
By utilizing off-chain transactions, BlackRock can borrow Bitcoin from Coinbase without triggering the same level of scrutiny as on-chain transactions. This capability is especially pertinent when it comes to short-selling. Short-selling is borrowing, selling at market price, and repurchasing at a lower price for profit.
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The ability to execute these trades off-chain means BlackRock can conduct substantial short-selling activities. It doesn’t need to provide proof that it holds equivalent Bitcoin reserves. The settlement period for these off-chain transactions ranges from 2 to 30 days, providing flexibility for BlackRock to manage its trading strategies.
During this time, the borrowed Bitcoin can be used for various purposes, including speculative trading or hedging. The final settlement, conducted in cash, further simplifies the process by eliminating the need to return the exact amount of Bitcoin borrowed. This cash settlement mechanism allows for easier balancing of accounts and reduces the complexity associated with handling large volumes of Bitcoin.
More About Blackrock & Coinbase
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This discrepancy can lead to a distorted view of Bitcoin’s actual supply and demand dynamics. Moreover, the ability to short-sell large amounts of Bitcoin without immediate on-chain accountability can impact Bitcoin’s price volatility.
If BlackRock, or any other major financial institution, engages in substantial short-selling activities, it could exert downward pressure on Bitcoin’s price. This could potentially affect the broader market and retail investors
Disclaimer
The information discussed by Altcoin Buzz is not financial advice. This is for educational, entertainment, and informational purposes only. Any information or strategies are thoughts and opinions relevant to the accepted levels of risk tolerance of the writer/reviewers and their risk tolerance may be different than yours. We are not responsible for any losses that you may incur as a result of any investments directly or indirectly related to the information provided. Bitcoin and other cryptocurrencies are high-risk investments so please do your due diligence. Copyright Altcoin Buzz Pte Ltd.
