Bitcoin’s Shift from Self-Custody to ETFs
Recently, Robbie Mitchnick, head of digital assets at BlackRock, disclosed in an interview with Bloomberg that the firm has had over $3 billion in Bitcoin conversions to the iShares Bitcoin Spot ETF (IBIT). Bitcoin whales are moving their coins from self-custody into more conventional financial products.
The Move Towards Convenience and Traditional Finance
Up until now, many Bitcoin whales have been using self-custody wallets to store their assets. However, ETFs offer greater convenience. As per Mitchnick, investors are benefiting from being able to hold this cryptocurrency through their current banks and advisers. With this new strategy, they can not only stay exposed to Bitcoin but also seamlessly leverage their crypto wealth in traditional services like lending and other investment opportunities.
An alteration in the US Securities and Exchange Commission (SEC) rule enables in-kind creations and redemptions for crypto ETFs, making the transition easier. This change means that big investors can trade ETF shares for Bitcoin instead of cash. This change makes exchanges easier and more tax-efficient.
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BlackRock’s IBIT ETF: A Record-Breaking Success
BlackRock’s IBIT ETF outperformed the market among the spot Bitcoin ETFs approved in the US. In June 2024, the ETF became the fastest on record to surpass $70 billion in assets under management (AUM). That amount is now over $88 billion, making it among the most successful Bitcoin ETFs.
Broadly speaking, and given the context of a bull market, we are seeing that market players are becoming increasingly interested in Bitcoin. More precisely, a net inflow surge is happening, which shows investor confidence in Bitcoin is on the rise. The institutionalization of Bitcoin keeps accelerating as more investors pile into these products.
Challenging the “Not Your Keys, Not Your Coins” Philosophy
The Bitcoin investment landscape is changing with the rising popularity of Bitcoin ETFs. For years, those who believe in self-custody have been saying that “not your keys, not your coins” is the safest way to own Bitcoin. Bitcoin’s early principles focused on security, independence, and control by the users. Nonetheless, the emergence of spot Bitcoin ETFs and corporate treasury holdings is infringing on that ideal.
Even though the thinking has transformed, the spot Bitcoin ETF is not undercutting self-custody. That is, they serve different kinds of investors. Demand for Bitcoin ETFs – which allows whales and institutional investors to bet on Bitcoin without actually holding Bitcoin – has increased significantly. According to Willy Woo, on-chain expert, self-custodied Bitcoin in July 2024 broke an upward trend of 15 years, suggesting a directional shift in Bitcoin holders.
A New Wave of Institutional Participation in Bitcoin
Although self-custody remains the choice of many Bitcoiners, ETFs are helping institutional investors gain exposure to Bitcoin in a more traditional, custodial manner. Large holders of Bitcoin that used to be instrumental in manipulating markets with their buys and sells are moving towards products and services more aligned with traditional finance.
BlackRock’s IBIT and institutional interest in Bitcoin have gathered success. As they demonstrate, it shows the Bitcoin ecosystem is integrating into the financial ecosystem. This marks progress for Bitcoin’s successful future on Wall Street.
