Crypto asset manager Bitwise has unveiled a plan to enhance transparency for its spot Bitcoin and Ethereum ETFs. It has done so by rolling out a third-party verification program, run by an accounting company called The Network Firm. The process, which is already operational, replaced the previous practice of publicly listing wallet addresses.
In this article, we’ll cover the details of that process and its significance. It’s part of a larger process of integrating cryptocurrency into traditional finance.
What Has Changed?
Bitwise has worked on its transparency promises by making the addresses of the wallets holding Bitcoin for its ETF public. This worked, but it was somewhat low-tech. Manually tracking the wallets also required a lot of work from the public interested in the ETF.
The Network Firm, a U.S.-based CPA firm, will verify both the on-chain crypto assets and ETF liabilities. Bitwise has also promised to make the reserve reports available and to update them daily. It demonstrates that the public is seeking transparency in crypto ETFs, and companies are seeking ways to comply with these expectations.
How does it work?
The Network Firm, whose partners used to work for Armanino, will conduct the process. Armanino was once one of the biggest crypto asset holders in the business, until the company shut down in 2023. The company has laid out the details of the technical process to the public.
It will reconcile the amount of Bitcoin and Ether held in custody on-chain against the total number of shares issued. This will be a daily occurrence. That way, the assets will be counted and matched against the liabilities. It’s a way to reassure the investors to whom these liabilities are owed.
Rebuilding the Trust in Crypto
Bitwise’s Bitcoin ETF currently holds about $4.9 billion in BTC. On the other hand, large holders, such as BlackRock, hold as much as $18 billion. Bitwise, therefore, needs a way to stand out as a relatively small player in the new crypto ETF market. Transparency and a focus on users’ concerns are the best ways to do it.
At the same time, there’s still some distrust of the crypto itself among traditional investors. This is especially true following the collapse of FTX, and crypto management companies are working hard to change public perception.
Changes in the Crypto Landscape
With the introduction of crypto ETFs, the entire cryptocurrency landscape has undergone significant changes, becoming more institutionalized and regulated. This is most noticeable in how the businesses that accept crypto payments have changed. For instance, no KYC crypto casinos are advertised as casinos that don’t require players to provide personal information. That was once standard practice.
Such casinos allow players to make payments without requiring them to provide any personal information, including their names and addresses. This is possible since crypto payments don’t rely on a centralized authority collecting that information. However, more and more casinos are implementing Know Your Customer (KYC) regulations, designed to prevent money laundering, which require players to provide an ID to register.
Why Does It Matters for Investors?
The decision to increase transparency extends beyond Bitwise and has broader implications for investors with a stake in other ETFs.
Increased Confidence
The decision will reduce fear and uncertainty since having a third party deal with assets and liabilities is seen by investors as a way to introduce accountability.
Real Time Risk Mitigation
Common risks associated with crypto ETFs would be easier to identify and address using the new system. For instance, if assets didn’t match the share insurance, the investors would be immediately aware of the issue.
Regulatory Alignment
At this point, there’s no legal requirement to introduce the third-party process. However, regulation regarding crypto trading and ETFs is changing, as there are now more investors than ever before. Many, therefore, feel that Bitwise is just anticipating stricter regulations and introducing new norms early on.
Market Differentiation
There are now more than a few crypto ETFs, and many more are expected to be introduced soon. Even some smaller altcoins will introduce their ETFs as a way to enter a new market. Bitwise is therefore trying to differentiate itself from the competitors.
To Sum Up
Bitwise moves to implementing daily and third-party proof of reserve for its Bitcoin and Ethereum ETFs. It’s a significant step toward providing transparency in the cryptocurrency investment industry. This field has been growing for years, and changes such as these are a way for the investment fund to differentiate itself from the pack.
The decision also reflects the evolving regulatory landscape in the cryptocurrency market. With a wider expectation of cryptos, the field becomes safer and more regulated. For many users, it’s a change and a deviation from what cryptos used to be – a market away from traditional finance.