🚨 Unveiling the Hidden Risk of Bitcoin ETFs: Are Securities Lending a Silent Threat? 🕵️♂️💸
As the crypto community eagerly awaits the launch of Bitcoin ETFs in the United States, Custodia Bank CEO Caitlin Long raises a crucial concern - a "hidden risk" associated with some ETFs. Long suggests that sponsors might use securities lending to boost profits, presenting potential risks often overlooked.
🔍 The Securities Lending Conundrum: A Race to the Bottom?
In response to the recent race among Bitcoin ETF applicants to offer lower management fees, concerns arise about how these funds plan to sustain profitability. With BlackRock, VanEck, and Bitwise revealing management fees as low as 0.3%, 0.25%, and 0.24% respectively, the industry seems poised for a fee war. Long warns that fees lower than costs may indicate reliance on securities lending for revenue.
💼 How Does Securities Lending Work?
Securities lending involves temporarily transferring shares or bonds to a borrower, who provides collateral and pays a fee. This practice, common in fund management, raises questions about potential hidden risks and the lack of disclosure for investors. The reinvestment of cash proceeds generated from lending becomes a critical concern.
📉 Hidden Risks and Little Disclosure: A Cause for Concern?
Long emphasizes the potential risks associated with securities lending, urging investors to question how cash proceeds are reinvested. The lack of transparency in this process could pose challenges for investors, adding a layer of complexity to the already dynamic world of crypto investments.
🔐 ETF Issuers' Stance on Securities Lending: Clarifications and Concerns
While many anticipate SEC approval for Bitcoin ETFs, concerns about securities lending persist. Hany Rashwan, CEO of 21Shares' parent company, reassures that their application explicitly rules out using securities lending.
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