Earlier this week, Bitwise became the first Bitcoin exchange-traded fund issuer to issue a wallet for its fund, and it wasn’t long before the wallet started receiving unexpected gifts.
Some users sent small amounts of Bitcoin to their wallets as follows: 0.00042069 BTC
+3.58%
. Others sent BRC-20 tokens, Bitcoin domain names, and various Bitcoin NFTs to their wallets. The purses totaled more than $5,000.
Commenting on all of this, Bitwise CIO Matt Hougan said, “All assets are accrued for the benefit of BITB shareholders.”
If Bitwise receives assets involuntarily, it may sell those assets for cash and distribute the cash proportionately to shareholders, according to the fund’s S-1 filing. A previous version of the S-1 stated that such assets could be distributed in-kind, but this language was removed prior to approval.
What about OFAC approved addresses?
Cryptocurrency critics have raised another issue related to the fund. The U.S. Treasury has approved some Bitcoin wallet addresses and any wallets that receive funds from those addresses must block the Bitcoin they receive and report the transaction information to the Office of Foreign Assets Control.
Bitcoin wallets are problematic because they cannot prevent funds from being transferred. Anyone can send Bitcoin to any wallet. The recipient cannot prevent the funds from entering their wallet.
Hougan said the issue is addressed at the custodian level. Bitwise currently uses cryptocurrency exchange Coinbase as its custody service provider. When asked for comment, a Coinbase spokesperson said the exchange blocks OFAC-approved addresses. When asked how they can do so, they responded, “We work with our clients to ensure their funds are blocked and reported in accordance with the law.”
The spokesperson also pointed to a Coinbase blog post that said, “If we receive a notification that an attempt has been made to send to or receive from an authorized address, the funds will be transferred to an internal Coinbase holding account and held securely.”
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