Investors have begun to believe that the approval of the spot Bitcoin ETF last week, after a decade, is more than just temporary hype. However, there are massive differences between a Spot Bitcoin ETF and holding BTC on an exchange. These differences may attract investors who want to allocate their portfolio to high-risk assets above a certain capital. Let’s now take a look at this detail that we need to know in the long term.
Why is a Spot Bitcoin ETF Important?
In the United States, ten asset managers have launched billions of dollars worth of spot Bitcoin exchange-traded funds with SEC approval. While some investors consider BTC to be vulnerable and risky, investing in BTC through a spot Bitcoin ETF is a much safer option than holding BTC on exchanges.
In the last few years, we have seen DeFi platforms being hacked, but centralized exchanges can never completely eliminate the risk. The Poloniex incident in 2023 was the last major case and the first centralized exchange attack after a long break, causing billions of dollars in losses.
According to Ophelia Snyder, co-founder of 21Shares and its parent company 21co, a spot Bitcoin ETF is very different from holding BTC on centralized exchanges.
“We use Coinbase as a custodian for a US product. My depositing money to Coinbase as Ophelia Snyder versus as 21Shares to Coinbase, the products are structurally different.”
21Shares recently got approval for the ARKB ETF by ARK Invest last week. The Europe-based 21Shares also manages numerous crypto ETPs in the region and is even the largest crypto ETP issuer on a global scale. Snyder stated;
“Our money goes into a specific wallet that belongs to us. In our case, actually multiple wallets, because we don’t want to have a single point of attack. This way, we actually distribute it across multiple wallets.”
Differences in the Bankruptcy Process
According to Snyder, a spot Bitcoin ETF is also very different from centralized exchanges in terms of the bankruptcy process. If 21Shares or another issuer goes bankrupt, customers can directly reclaim the underlying assets of their ETFs through a trustee mechanism from Coinbase Custody. She also emphasized that the ETF issuer does not have the authority to move these assets.
“If everyone at 21Shares disappears tomorrow, there is a mechanism using a trustee that allows these assets to be reclaimed directly from Coinbase. There is not a single person within the institution who can really move these assets.”