Frog Vomit and Other Challenges Plague US Bitcoin ETFs

In a bizarre turn of events, US exchange traded funds that invest directly in bitcoin have found themselves in possession of digital assets they did not purchase and cannot sell. These unexpected virtual arrivals, known as “dust”, have been embedded in previous cryptocurrency transactions and sold by past owners, resulting in a small windfall for the funds.

However, due to regulatory restrictions, the bitcoin ETF managers are unable to cash in on their newfound fortune. The Securities and Exchange Commission has not granted approval for the sale of these bonus virtual assets to avoid potential tax regulation violations.

The issue of “dust” has been growing since the launch of US spot bitcoin ETFs in January, with more than 500,000 bitcoin hoovered up by these funds. Many of these gifts have been made possible through the creation of bitcoin NFTs (non-fungible tokens) that allow text and images to be embedded into bitcoin.

Some of the digital wallets of ETF providers, such as Cathie Wood’s Ark Investment Management and Bitwise Asset Management, have been found to contain assets other than bitcoin, including digital artworks and rare cryptocurrency tokens. Despite efforts to keep “dust” at arm’s length, the ETFs may face challenges in maintaining their legal status if they attempt to sell these assets.

As the debate over the handling of unsolicited crypto gifts continues, it remains to be seen how bitcoin ETFs will navigate this unexpected turn of events.