Could Bitcoin ETFs cause a crisis? \ stacker news ~bitcoin

This is probably crazy conspiracy talk, I'm hoping folks smarter than me could tell me why this wouldn't happen.

BlackRock and other Bitcoin spot ETFs are using places like Coinbase to custody the bitcoin, right?

Let's fast-forward a few years and assume that a ton of US citizens have bitcoin ETF exposure and then let's assume hackers break into places like Coinbase and steal the bitcoin.

In this example, BlackRock could just say, "Sorry folks, your bitcoin is gone. Coinbase lost it, not us." BlackRock would be fine, but exchanges (and bitcoin) will have their reputations smashed.

"Never waste a good crisis"

If enough people are rugged, it's not a stretch to believe that policy makers will pass new laws to stop these kind of things from happening again. Of course, the right answer would be "self-custody." But, instead of pushing for self-custody (which would require changing laws and charters of large institutions) policy makers will, as usual, add rules to "fix" the problems.

Here are a few "fixes" I could see happening:

Internet usage connected to a Digital ID - it would "stop the hackers from hacking"
CBDC - it could be "FDIC insured" and if a hacker stole it, the US could just take it back

Sadly, neither of these things will help. Hackers will hack from countries that don't have Digital IDs and I think we all know how crap a CBDC would be.

My worry here is that spot bitcoin ETFs could be the very thing that cause a crisis big enough to pass draconian laws.

Luckily, those of us that self-custody will be fine (even if the value takes a hit for a while), but it'll suck to have to use Digital IDs and/or CBDCs.

Ok, please tell me this kind of thing wouldn't happen. Hopefully I'm missing something.

10 sats \ 2 replies \ @gd 28 Dec 2023

I was thinking about this recently, the tradfi way to mitigate these types of risk is to take insurance products on them, but then the insurance providers would need to hold sufficient Bitcoin in some sort of custody to cover losses? But that doesn’t work with an asset with limited supply.

0 sats \ 1 reply \ @HardRich OP 28 Dec 2023

Insurance could solve the problem. I wonder if the ETFs are required to have insurance. So long as folks don’t get fully rugged then perhaps we’ll be alright.

0 sats \ 0 replies \ @gd 28 Dec 2023

USD insurance? Or BTC insurance?

20 sats \ 1 reply \ @quark 28 Dec 2023

hackers cannot steal Coinbase easily. Exchanges have learned how to protect it. They don't have all as hot bitcoin in the server of course. Unless hackers are Coinbase or Blackrock themselves haha nah do not worry. I think one FTX example to scare the people is enough. Blackrock and Coinbase seem serious :D

0 sats \ 0 replies \ @Eobard 28 Dec 2023

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0 sats \ 0 replies \ @oliverweiss 28 Dec 2023

I’m not excited about the spot ETFs either. There can be exactly a huge accumulation of Bitcoins in the hands of few, which will eventually introduce fragility into Bitcoin. Moreover, all Bitcoins on the balance sheets will be KYC-Bitcoins, so the state cannot be happier, etc.

10 sats \ 0 replies \ @Eobard 28 Dec 2023