- The Bitcoin price continues to disappoint, despite significant ETF inflows.
- Some observers suggest major industry players are engaged in shady practices.
- Bitwise president dismissed theories of Coinbase manipulation, clarifying ETF mechanics.
Bitcoin’s price has been floundering recently after topping out at $72,000 on June 7. This culminated in a sharp 5% swing to the downside on Tuesday, with BTC hitting a three-week low of $66,100. The lackluster price action has surprised many market observers, given the consistent inflows into Bitcoin ETFs since mid-May.
Between May 13 and June 10, Bitcoin ETFs reported positive net inflows daily, leading to assumptions that this increased demand would buoy the spot price higher. However, the spot price has failed to rally in line with expectations, fueling suspicions of price manipulation behind the scenes.
Bitcoin Price Manipulation
Initially, attorney Sasha Hodder theorized that the stagnant Bitcoin price could be explained by Coinbase”rehypothecating” the BTC it holds on behalf of its ETF clients as their custodian.
Under such a scenario, paper Bitcoin is created to artificially expand the supply of coins, which in turn, interferes with the demand-supply dynamics that govern price movement.
Sponsored
However, Hodder later clarified that her comments were mere speculation, intended to stir debate on why the BTC price has been unable to break above the $72,000 resistance level despite the hefty institutional inflows.
The lack of clarity has opened the floodgates for all manner of speculative claims to emerge on the issue. One X user blamed the bizarre price action on the role of Tether, while another inferred that derivative markets such as ETFs are ripe for manipulation.
While wild theories continue to proliferate, more sober voices dismissed allegations of nefarious actions behind the scenes.
Price Manipulation Doesn’t Tally
Chiming in with a more considered response, Steven Lubka, head of Swan Private, stated that he doesn’t buy the theory that Coinbase is rehypothecating Bitcoin. Lubka explained that it makes no sense for Coinbase to suppress Bitcoin’s price when the company would financially benefit from bullish sentiment via increased trading volumes and revenues.
Sponsored
Expressing further doubt, Lubka also mentioned that Coinbase would be taking significant legal risks by participating in such actions, arguing that the incentives don’t line up.
How ETFs Operate
Definitively shutting down talk of Coinbase rehypothication rumors, Teddy Fusaro, Bitwise president, explained the mechanics of how ETFs operate. Fusaro explained that ETF providers (with Coinbase as the custodian) have two types of accounts with Coinbase:
- Trading Account at Coinbase Prime
- Custody Account at Coinbase Custody Trust Company
Transactions within the Trading Account are internal ledger movements and are not recorded on the Bitcoin blockchain. Whereas transactions involving the Custody Account are on-chain transactions.
Fusaro clarified that when an ETF provider, such as BlackRock, wants to buy BTC:
- Coinbase Prime acts as an agent that facilitates the lending of cash and settlement in BTC. This process occurs off-chain.
- At the close of daily business, the BTC purchased via Coinbase Prime is transferred to the Custody Account, and this appears on-chain.
- The ETF provider then repays the cash borrowed at the beginning of the cycle.
As such, any borrowing of funds is necessary (and temporary) to facilitate the purchase of Bitcoin, per the mechanics of the ETF setup. Once the Bitcoin is swept to the Custody Account, it is not reused or hypothecated.
On the Flipside
- SEC chair Gensler has often accused crypto markets of manipulation and fraud.
- Market manipulation allegations invite greater scrutiny from financial authorities.
Why This Matters
Accusations of manipulation have plagued Bitcoin’s history, and this latest bout of allegations is nothing new. Nonetheless, Fusaro’s explanation has shut down rumors of foul play.
Donald Trump continues his pro-Bitcoin campaign to woo voters.
Trump Rallies Bitcoin Mining Industry Support Ahead of Election
Ripple’s stablecoin ambitions take a step forward with the Standard Custody acquisition.
Ripple Pushes Stablecoin Plans, But U.S. Trails E.U. Regs
