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Understanding Bitcoin ETFs: The Risks and Alternatives

Understanding Bitcoin ETFs: The Risks and Alternatives

Mar 18, 2024
Bitcoin Basics

Understanding Bitcoin ETFs: The Risks and Alternatives

Bitcoin ETFs (Exchange-Traded Funds) have emerged as a popular financial product for investors seeking exposure to Bitcoin without the need to directly purchase and store their private keys. These funds aim to track the price of Bitcoin and are traded on traditional stock exchanges.

The Mechanics of Bitcoin ETFs

When an investor buys a spot Bitcoin ETF, they are essentially acquiring an IOU that represents a share of a Bitcoin held in custody by a third party, such as Coinbase Custody or Fidelity. The investor does not own the actual Bitcoin but rather a claim on its price appreciation. ETF sponsors, such as BlackRock, reserve the rights to make decisions regarding forks, airdrops, and other events that could affect the value or composition of the ETF.

Limitations and Risks

One of the primary concerns with Bitcoin ETFs is the lack of control investors have over the underlying asset. The Bitcoin is held by a custodian, and investors do not possess the private keys needed to directly access or transfer it. This centralized approach to holding Bitcoin can lead to several risks:

Account and Asset Control

Assets held within a brokerage account can be subject to freezes or seizures under certain circumstances, such as legal or political reprisals. This could result in an investor being unable to access their funds.

Potential for Seizure or Hack

There is a historical precedent for government seizure of assets, as seen in the 1933 Executive Order 6102, which required Americans to exchange their gold for U.S. currency. Concerns are raised that, in the future, governments could similarly target Bitcoin held by custodians.

Guarding Your Bitcoin: Preparing for a Potential 6102-Style Seizure
This article explores the possibility of a government-initiated Bitcoin 6102 Attack, drawing parallels to the 1933 Executive Order 6102 which mandated Americans to exchange their gold.

Impact on Decentralization

By pooling Bitcoin in centralized custodial services, the ecosystem becomes less decentralized and potentially more susceptible to systemic risks, such as large-scale hacks or institutional failures.

Alternatives to Bitcoin ETFs

Self-Custody Solutions

Investors can purchase Bitcoin directly and use hardware wallets to store their private keys securely. This method ensures the investor has complete control over their Bitcoin and is not reliant on third-party services. Hardware wallets, such as BitKey, Blockstream Jade, or ColdCard, facilitate the safekeeping of private keys and the signing of transactions.

Bitcoin-Only Financial Services

Platforms like Unchained, River Financial, and Strike offer services to buy Bitcoin with the intention of self-custody. These companies provide user-friendly interfaces through phone apps and browsers.

Bitcoin financial services - Unchained
Unchained is a bitcoin native financial services company offering collaborative custody multisignature vaults and loans for bitcoin holders.

Bitcoin IRAs

For retirement planning, investors may consider Bitcoin IRAs or multisig solutions from from a company like Unchained. These products allow for self-custody or collaborative custody solutions within a retirement account framework.

Unchained IRA: The most secure bitcoin IRA - Unchained
With Unchained’s bitcoin IRA, you can save bitcoin on a tax-advantaged basis while holding your own keys. There’s no better way to save for retirement.


While Bitcoin ETFs offer a convenient way to gain exposure to Bitcoin's price movements, they come with significant limitations and risks related to control, potential asset seizure, and the impact on Bitcoin's decentralization. Alternatives such as self-custody via hardware wallets and Bitcoin IRAs provide a more secure and autonomous way to own and manage Bitcoin, aligning with Bitcoin's principles of freedom and self-sovereignty.

Investors are encouraged to weigh the pros and cons of each method and consider their long-term goals and risk tolerance when deciding how to invest in Bitcoin.


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