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In a new YouTube video titled “No ETF Paper Bitcoin,” Fred Krueger, an investor at crypto hedge fund 2718.fund, weighed in on the growing concerns surrounding US Bitcoin Exchange-Traded Funds (ETFs) and their impact. cryptocurrency price. Krueger aimed to dispel the fear, uncertainty, and skepticism (FUD) that has been spread about “Bitcoin paper” — the idea that ETFs may be selling Bitcoin they don’t actually own — and to explain why Bitcoin’s price hasn’t risen dramatically. others would expect, despite significant ETF purchases.
Krueger began his analysis by acknowledging the skepticism prevalent in the market. “There’s all this Bitcoin paper, and ETFs don’t really own Bitcoin, and if they were buying all this Bitcoin, how come the price of Bitcoin isn’t higher?” he said, summing up the basic concern of many investors.
Historically, the concept of “Bitcoin paper” has been associated with exchanges that sold Bitcoin to customers without owning the underlying asset. Krueger highlighted several high-profile cases where this practice led to significant losses for investors. He mentioned the issue of Mt. Gox.
Another example he gave was QuadrigaCX, a Canadian exchange that went down under mysterious circumstances. Founder Gerald Cotten is believed to have died in India, taking with him the private keys to the company’s cold wallets, locking away customers’ funds. “Many Canadians lost their Bitcoin to this Quad exchange,” Krueger noted.
Is “ETF Paper Bitcoin” Real?
These historical events have contributed to the current fear about ETFs and the possibility that they may engage in similar practices—selling Bitcoin they do not actually hold, thereby depressing the price of BTC through artificial supply. However, Krueger argued that ETFs, especially those managed by established financial institutions, operate under a very different framework compared to unregulated exchanges.
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Focusing on two leading ETFs—IBIT, the BlackRock ETF, and FBTC, the Fidelity ETF—Krueger emphasized the strong oversight that governs these entities. “Both of these ETFs are subject to strict supervision, including by the SEC but also by other US agencies,” he said. This comprehensive oversight includes full transparency requirements, regular audits, and the use of third-party custodians to verify assets. “They have to get a receipt for the goods from the third-party custodian,” Krueger added.
In the case of IBIT, Coinbase acts as a third party custodian. “Coinbase itself is an auditable public company,” Krueger said, noting that Coinbase’s public nature adds an extra layer of scrutiny and accountability. IBIT conducts inspections of Coinbase, and both organizations are subject to inspections by the SEC and other regulatory bodies. At FBTC, custody is managed by Fidelity Digital Assets, a separate business within Fidelity that specializes in custody of digital assets, thereby ensuring exceptional oversight and management.
“The issuers of IBIT and FBTC are BlackRock and Fidelity, two of the largest and oldest financial institutions, and they have an interest in maintaining their reputation,” Krueger asserted. “Their reputation is at stake, and this is a big thing,” he stressed, suggesting that these institutions would not risk their credibility by engaging in the sale of non-existent Bitcoin.
Krueger compared BlackRock to businesses like QuadrigaCX to emphasize the difference in regulatory compliance and performance measurement. “BlackRock is very regulated […] BlackRock has a strong corporate governance structure with audit, risk, and compliance committees and a very comprehensive internal control,” added Krueger.
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Addressing the main concern about ETFs holding “paper Bitcoin,” Krueger provided some data to counter the idea. “The reality is that ETFs don’t have pure Bitcoin,” he said bluntly. He emphasized that IBIT holds about 403,000 real Bitcoins, while FBTC holds about 185,000 real Bitcoins. “Together, these two ETFs hold about 3% of the world’s total Bitcoin, or 588,000 Bitcoins—I think it’s 2.9%,” he calculated.
Krueger acknowledged that some skeptics have tried to analyze Bitcoin’s intraday movements to challenge this hold. However, he emphasized that the facts are clear and verifiable. “We know how much Bitcoin these ETFs have; we know that it counts, and that is true,” he stressed.
Turning to the question of why the price of Bitcoin has not increased significantly despite the significant influx of ETFs, Krueger offered a subtle explanation. He noted that Bitcoin has, in fact, risen 60% since the launch of ETFs, which translates to a growth of $600 billion in market capitalization. This growth was fueled by nearly $20 billion in net inflows into ETFs, resulting in a multiple of nearly 30x. “That’s historically normal, maybe a little on the low side but not really,” he assessed.
Krueger said the moderation in Bitcoin’s price growth is due to significant selling pressures from various sources. “There were a lot of things for sale,” he explained. He elaborated that Germany sold $3 billion worth of Bitcoin and Mt. Gox Holdings. Additionally, FTX sold its GBTC (Grayscale Bitcoin Trust) stake earlier this year, and Digital Currency Group (DCG) sold assets to settle lawsuits. “We were selling a lot,” Krueger summed up.
Speculating on the potential impact in the absence of these selling pressures, Krueger suggested that the price of Bitcoin could have been much higher. “We’d probably be at $90k if there weren’t any sales,” he said.
At press time, BTC traded at $68,752.
The featured image was created with DALL.E, a chart from TradingView.com
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