(Aug 10): US-listed bitcoin exchange-traded funds posted their strongest weekly inflows since April, in the wake of a hack that brought renewed focus on the risks of safeguarding digital assets.
The ETFs — which offer exposure to bitcoin’s price without requiring investors to hold or secure the tokens themselves — attracted more than US$850 million (RM3.48 billion) last week.
The surge in inflows followed the disclosure of a breach involving Coldcard wallets made by Canada-based Coinkite Inc, that drained an estimated US$130 million of bitcoin, prompting some analysts to suggest investors may be gravitating toward Wall Street’s regulated crypto wrappers.
“The Coldcard hack could make spot bitcoin ETFs a more appealing option for some investors, including even some long-time bitcoin holders,” said Eric Balchunas, an analyst at Bloomberg Intelligence.
Cold wallets have long been regarded as one of the safest ways to store digital assets. The physical devices are kept offline and use secret codes to give owners the ability to transact with their cryptocurrency. That separation from the internet is designed to make holdings far less vulnerable to cyber attacks.
The Coinkite incident has challenged that dogma. A flaw in certain versions of Coinkite’s firmware made the information used to secure some wallets more predictable than intended, allowing attackers to take control of affected wallets and steal the bitcoin without ever accessing the Coldcard devices.
“We’re heads down helping affected customers,” Coinkite said in an emailed statement to Bloomberg News on Thursday.
The hack marked the latest blow for bitcoin holders, who have already watched the cryptocurrency’s price tumble around 50% from its record high in October. Bitcoin has traded in a narrow range of US$60,000 to US$67,000, with relatively muted price moves since June.
That makes the jump in ETF demand over the past few days more notable because the inflows weren’t accompanied by a major rally.
The demand suggests “the marginal coin is migrating from self-custody into institutional wrappers where it becomes captive, allocated supply,” said Rajiv Sawhney, head of international portfolio management at Wave Digital Assets.
A shift towards ETFs doesn’t eliminate risk. An ETF’s cryptocurrency custodian could still suffer a security breach, even if large firms typically employ dedicated security teams and extensive safeguards to protect client assets.
Investors also give up the direct control that comes with holding bitcoin themselves, something many have become wary of after years of exchange failures, bankruptcies and frauds across the cryptocurrency sector.
“There’s no guarantee against losses if an ETF custodian were ever compromised but such an incident would likely trigger immediate regulatory scrutiny and a law enforcement investigation,” Balchunas said. That may give some investors more confidence in entrusting their bitcoin exposure to large financial firms, he added.
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