Wrapped Bitcoin on Ethereum (WBTC) had tumultuous last few weeks as it fell uncomfortably below par. It returned to a healthy valuation toward the end of the stock trading session in New York.
The deviation started on November 11, according to TradingView, when FTX declared bankruptcy. WBTC reached a nadir of 0.985 BTC on the Binance exchange on November 25. Michael Bentley, Euler Finance CEO, attributed WBTC’s plunge to the general nervousness about lending and borrowing markets. He said there were some unfortunate circumstances. Bentley revealed that it had initially made him nervous.
Bentley attributed the slowness of WBTC to the Thanksgiving holiday weekend. However, Kaiko called this a crisis of confidence. He believes investors panicked after charts circulating on Twitter showed that Alameda Research is the top WBTC merchant by the number of tokens minted. It created more than 100,000 WBTC, sparking fears that the cryptocurrency was not fully backed. The panic betrayed the basic misunderstanding of how WBTC works.
It should be noted that BitGo takes custody of an equivalent amount of BTC for WBTC to be minted on Ethereum. As such, Alameda Research’s insolvency has no relevance. Whatever WBTC they hold required them to send BTC to BitGo, or was bought off the spot market. BitGo can absolve them for any circulating WBTC in the market when needed.
Chen Fang, BitGo’s chief operating officer, highlighted that BitGo is just the custodian, all end user minting and burning must go through one of the merchants in the WBTC network or trade it at an exchange. He assured users that WBTC is 1:1 backed, and verified on the chain.