As I waited with the rest of the world for the first bitcoin ETF to be approved, one thing has been gnawing at me: With a handful of exceptions including Fidelity and VanEck, nearly every applicant for a spot bitcoin ETF intends to use Coinbase as its custodian.David Schwed is chief operating officer of Halborn.As a cybersecurity leader focused on blockchains, this concentration of risk along with the inherently high-risk nature of crypto custodianship and the still-evolving nature of security best practices gives me pause.It’s not Coinbase itself that worries me here. The firm has never been hit by a known hack, which explains why so many traditional institutions trust its know-how. However, there is no such thing as an unhackable target – anything and anyone can be compromised, given enough time and resources, which is a lesson I've learned over a career at the intersection of cybersecurity and asset management.What worries me is the extreme asset concentration in a single custodian. And given the cash-like nature of crypto assets, that makes the situation inherently concerning.See also: Gary Gensler's Bitcoin ETF Clown ShowIt may be time to rethink the “qualified custodian” designation, a regulatory sign-off which in its current form doesn’t necessarily ensure risky blockchain-based assets are necessarily (or best) secured. Further, ideally, digital asset custodians should be subject to more oversight by better-trained regulators, under more rigorous state and federal standards, than they are right now.Most qualified custodians today secure equities, bonds or digitally tracked fiat balances, all of which are fundamentally legal agreements, which can’t simply be “stolen.” But bitcoin [BTC], like cash and gold, is what’s known as a bearer instrument. A successful crypto hack is like a bank robbery in the Wild West, as soon as it’s in the hands of a thief, the money is simply gone.So for a crypto custodian, one mistake is all it takes for the assets to disappear entirely.We also know the forces of global crypto-crime are formidable and determined. To pick just one notorious example, North Korea’s Lazarus Group hacking cohort is believed to have stolen $3 billion worth of crypto over the past six years, and it shows no signs of stopping. Inflows to a bitcoin ETF have been projected at somewhere above $6 billion in the first trading week — making these funds a prime target.If Coinbase winds up with tens of billions in bitcoin sitting in its digital vaults, North Korea can easily organize a $50 million operation to steal those funds, even if it takes multiple years. Threat actors like Russia’s Cozy Bear/APT29 group might also find going after institutional crypto increasingly appealing as those pools get bigger — potentially much, much bigger.This is the level of threat that major banks prepare for. One widespread model of risk management for financial institutions utilizes three layers of oversight. First, the business management layer designs and implements security practices; second, the risk layer oversees and evaluates those practices; and third, the audit layer makes sure that risk mitigation practices are actually effective.On top of that, a legacy financial institution will have external auditors and external IT oversight, as well as numerous state and federal regulators looking over their shoulders. Many, many eyes will examine every aspect of risk and security.But these multiple levels of redundancy and nesting failsafes require one deceptively simple thing: headcount.During my time as global head of digital assets technology at BNY Mellon, the investment bank had roughly 50,000 employees, of whom around 1,000 – or 2% – were in security roles. Coinbase, even after recent expansion, has fewer than 5,000 employees. BitGo, also a qualified custodian certified by the State of New York and other jurisdictions, has only a few hundred.This is not to impugn the intentions or skill of any of these organizations or their employees. But real oversight requires redundancy that these new institutions may struggle to provide at a level appropriate for securing tens of billions of dollars in bearer instruments.See also: Bitcoin ETFs: The Bull CaseBefore those numbers get even bigger (and more enticing for the bad guys), it is well past time to refine the cybersecurity standards for qualified custodian designation. Right now, the designation accompanies trust or banking licensing, overseen by state and federal regulators. These are financial regulators largely focused on traditional banking, not cybersecurity experts, and certainly not crypto experts. They understandably focus on balance sheets, legal processes, and other financial operations.But for crypto custodians, those aren’t the only kinds of oversight that matter, or even necessarily the most important. There are no industry-wide standards for cybersecurity and risk management practices by crypto custodians specifically, meaning that “qualified custodian” status isn’t quite as reassuring as it might sound. That exposes not just investors but an entire nascent sector to opaque risk with potentially dire consequences.The approval of a cast of bitcoin ETFs is just the latest step in the continued integration of digital assets into the financial system. You don’t have to trust crypto partisans on that prediction – just ask Blackrock, a legacy giant that championed the ETF. As these developments continue, regulators truly interested in investor protection will focus on adapting to this new world: one in which rigorous cybersecurity standards are just as important to financial stability as honest disclosures and financial audits.#BTC-ETF. #BTCETFS #BTC

On 11 January 2024, Reuters reported significant trading activity in the newly approved U.S.-listed Bitcoin exchange-traded funds (ETFs), with $4.6 billion worth of shares traded as of Thursday afternoon, according to LSEG data. This surge in trading came a day after the U.S. Securities and Exchange Commission (SEC) approved these landmark products, marking a potential shift in the mainstream acceptance of crypto for investment purposes.
Eleven spot Bitcoin ETFs, including notable ones, such as BlackRock’s iShares Bitcoin Trust, the Grayscale Bitcoin Trust, and ARK 21Shares Bitcoin ETF, began trading on Thursday morning. This event marked a watershed moment for the cryptocurrency industry, testing digital assets’ broader acceptance among professional investors.
Grayscale, BlackRock, and Fidelity dominated the trading volumes, according to the LSEG data. Todd Rosenbluth, a strategist at VettaFi, commented on the strong trading volumes but noted that the real test extends beyond a single day’s trading.
The SEC’s approval came after a decade-long tussle with the crypto industry. Despite this breakthrough, some executives still view Bitcoin as a high-risk investment. Vanguard, for instance, stated it had no plans to offer these new ETFs to its brokerage clients. SEC Chair Gary Gensler emphasized that the approval does not constitute an endorsement of Bitcoin, which he described as a “speculative, volatile asset.”
The ETF launches positively impacted Bitcoin’s price, driving it to $49,048, its highest level since December 2021. At the time of writing, Bitcoin is trading at around $45,790, up 2.9% in the past 24-hour period.

The approval sparked intense competition among issuers, with some slashing fees well below the industry standard. For instance, Valkyrie reduced its fees to 0.25% and waived them for the first three months.
Grayscale was approved to convert its existing bitcoin trust into an ETF, creating the world’s largest bitcoin ETF with over $28 billion in assets under management.
Analysts’ estimates on the potential inflows into spot bitcoin ETFs vary widely, ranging from $10 billion to $100 billion for the year.
According to Reuter’s report, as trading commenced, market participants closely monitored bid-ask spreads, a key indicator of an ETF’s desirability. Invesco’s Jason Stoneberg highlighted the importance of trading volume and market participants in driving spreads.
Despite the enthusiasm, some analysts cautioned that the broader investment community still views cryptocurrencies as risky, citing incidents like the FTX implosion in 2022.
Sharmin Mossavar-Rahmani of Goldman Sachs expressed skepticism about cryptocurrencies as an investment class. Meanwhile, Grayscale CEO Michael Sonnenshein revealed plans to file for a covered call ETF to allow income generation from options on its spot bitcoin product.
Cryptocurrency-related stocks experienced mixed results on the same day. Bitcoin miners Riot Platforms and Marathon Digital saw significant drops, while the ProShares Bitcoin Strategy ETF, which tracks bitcoin futures, gained slightly.
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