What's the difference between Coinbase and an ETF?

[BlackHatCoiner]

The main argument of the ETF is that it makes it more appealing to investors who don't want to hold their own coins, which I get it, to an extent. An investor may want to gain capital appreciation from Bitcoin long-term, without worrying about losing access to their keys. It's been also said that ETFs are convenient in terms of regulation.

Before Bitcoin, legislation is what protected your property. Examples following.

• If you buy a car, and a thief steals it, you have all the papers to prove it belongs to you.
• A thief can't just steal your house, because it's yours on paper.
• You can't have your company stolen.

This "mechanism" attracts investors. An investor won't buy a million dollars worth of gold, to keep it to their basement. Instead, they would buy a promise of that gold, because in the end, all they want is the capital appreciation, not the gold per se. The real gold is guarded and kept on secure vaults, inside banks. A thief can't just steal that gold.

How certain can investors be for the security of a Bitcoin ETF? What's the difference between that, and a centralized exchange? Both are supposed to safeguard their setups, yet we frequently notice centralized exchanges suffering from cyberattacks, resulting in clients' funds being stolen.

[SquirrelJulietGarden]

How certain can investors be for the security of a Bitcoin ETF? What's the difference between that, and a centralized exchange? Both are supposed to safeguard their setups, yet we frequently notice centralized exchanges suffering from cyberattacks, resulting in clients' funds being stolen.

There is no certainty for their fund safety if they don't go self-custodial by themselves.

It's not their private keys, it's not their bitcoin.

Reminder: do not keep your money in online accounts

With Bitcoin Spot ETFs, investors take different risks from the company that launch Bitcoin Spot ETF shares, to the custodian entity that is Coinbase. They never know what will happen with either the Bitcoin Spot ETF company or the custodian entity like Coinbase.

[_act_]

The ETFs are more secure than the bitcoin on centralized platforms like Coinbase because they can only be traded on the centralized exchanges, unlike bitcoin on Coinbase that can be moved to a noncustodial wallet address by a scammer or a hacker which can not be freezed by the central authorities like the exchanges.

But the reason I do not like bitcoin ETF is because it is not bitcoin itself. I will prefer to hold bitcoin instead. I mean the coins that is fully controlled by my own private keys and not those centralized platforms private keys or ETFs.

[BlackHatCoiner]

There is no certainty for their fund safety if they don't go self-custodial by themselves.

My understanding is that in ETFs, the safety of funds is ensured. When investors invest in ETFs, they are assured that their funds are secure. Investing in the S&P 500 offers certainty, providing assurance that investments are secure. The same principle applies to gold or real estate investments. It's reasonable because these assets can be confidently secured (some even just on paper, see S&P 500). However, with Bitcoin, only the knowledge of a number can swiftly move those funds. And the difference with the previous assets, is that the thief can be anonymous, or doesn't risk their physical well-beingness as a gold thief would.

The ETFs are more secure than the bitcoin on centralized platforms like Coinbase because they can only be traded on the centralized exchanges, unlike bitcoin on Coinbase that can be moved to a noncustodial wallet address by a scammer or a hacker

Bitcoin ETF has bitcoins in reserves. These bitcoins may be stored either inside a fund, or a centralized exchange, doesn't make much difference. The only difference I can think of, is that Coinbase holds its clients' coins in a hot wallet, where the ETF's bitcoins are stored in a cold storage.

My question is essentially, what difference does it make to make an agreement with Coinbase to hold your bitcoins in their cold storage, than buying an ETF? An ETF can't provide more "funds safety" than a Coinbase cold storage. How is the ETF more significant than that?

[Solosanz]

Not an expert in ETF, what I found is ETFs aren't insured, this same to centralized exchange. But when the company fails, the shareholders can still receive the money that they invested, even though not in full amount.

So when it comes to getting cyberattack, there's no difference with centralized exchange. It just depend on the company whether they willing to return the money or not.

[hyudien]

This "mechanism" attracts investors. An investor won't buy a million dollars worth of gold, to keep it to their basement. Instead, they would buy a promise of that gold, because in the end, all they want is the capital appreciation, not the gold per se. The real gold is guarded and kept on secure vaults, inside banks. A thief can't just steal that gold.

How certain can investors be for the security of a Bitcoin ETF? What's the difference between that, and a centralized exchange? Both are supposed to safeguard their setups, yet we frequently notice centralized exchanges suffering from cyberattacks, resulting in clients' funds being stolen.

Regarding how confident investors are in their Bitcoin entrusted to them, it is not much different when they invest under the protection of the institution that provides the service. They have been investing long before Bitcoin, and still provide proven security and guarantees. So offering an ETF is the same step as placing confidence that Bitcoin is as safe as other assets.
If we look at crime and risk, there is almost no difference. Several times centralized exchanges have been attacked and the assets in them have also been drained. In banking, we have also heard of certain banks being attacked by a group of criminals like in the movies. But all of this has strong collateral at stake by third parties. There's a lot of accountability, so it's just a matter of trust that's been built over time.

[stompix]

What's the difference between that, and a centralized exchange? Both are supposed to safeguard their setups, yet we frequently notice centralized exchanges suffering from cyberattacks, resulting in clients' funds being stolen.

The main thing would be that BR is too big and not that dependent on the crypto business to let their customer bleed for a mistake by their partner, if Coinbase (their custodian) goes down they have enough in insurance and additional funds to cover the losses, if Binance is hacked and drained for all their coins they have zero funds with which to cover the loss despite all that safu bs.

The ETFs are more secure than the bitcoin on centralized platforms like Coinbase

Coinbase is the custodian for Blackrock.

[_act_]

My question is essentially, what difference does it make to make an agreement with Coinbase to hold your bitcoins in their cold storage, than buying an ETF? An ETF can't provide more "funds safety" than a Coinbase cold storage. How is the ETF more significant than that?

ETFs are not moved but completely stored somehow safe. It is good for multisig and cold storage together which can be more layers of protection if done well than Coinbase that their customers can decide to withdraw their coins at anytime. I am not saying that the storage will be better for ETFs but it will likely be better because the coins remain not moved unlike Coinbase that still have to move some coins. Because of how exchanges are and customers moving money is the reason exchanges make use of hot wallet but which is not needed at all for ETFs. I have not gone deeper into ETF because I do not like it at all than for more bitcoin adoption but I think if I want to set up an exchange or bitcoin ETF, I see the bitcoin holding safer with bitcoin ETF.

Coinbase is the custodian for Blackrock.

This is not good at all. I did not know it is like this. I am using my knowledge to discuss it before. If they have it with Coinbase, I see no difference. But Coinbase may agree with Blackrock to hold the coins on cold storage with multisig. Bitcoin for ETFs should be very easy to protect.

[Ambatman 2]

My question is essentially, what difference does it make to make an agreement with Coinbase to hold your bitcoins in their cold storage, than buying an ETF? An ETF can't provide more "funds safety" than a Coinbase cold storage. How is the ETF more significant than that?

The biggest difference is the level of regulation
ETFs are more regulated by the government and SEC than CEX like Coinbase
Many investors believe anything under the government is safer than a private enterprise.
Another reason I can think of is the fee
I think some ETF collect fee as low as 0.1% to 0.25% not including Grayscale and this fee is smaller than Coinbase trading fee.
Besides there are companies that wouldn't want or are held back in buying bitcoin
But they can option to buying shares from companies that do.

How certain can investors be for the security of a Bitcoin ETF?

they aware of the risk but buying ETFs seems fairer to them
It's a stock and SEC and the government will protect them(Lol) in case of a breach in Coinbase. If anything so happen I think they should be an insurance fund set aside for unprecedented situations.


-An alt account of Ambatman

[cryptosize]

The only difference is that Coinbase allows you to withdraw BTC to a personal wallet, while ETFs only allow you to withdraw USD. That's why Grayscale ETF holders have to convert to USD first and then send those dollars to BlackRock to buy BTC ETF.

It's quite tedious in a sense, but for people who don't intend to ever use a BTC wallet it sounds rather convenient.

Besides that, the ETF marketing makes it more appealing to institutional investors. These folks treat BTC ownership like they treat home/car ownership (they don't mind custodians keeping their property titles). In general I'd say they blindly trust the Military - Industrial complex (the state and multinational corporations/Mega Corps).

Reputable exchanges have Proof of Reserves these days. That wasn't a thing before the FTX meltdown.

Also, with the crackdown on mixers a thief will have a hard time to launder stolen BTC... assuming that someone can find a mixer with a huge anonymity set, which is highly unlikely.

What worries me about BTC ETF is that they'll try to turn it into CBDC.

BlackRock will attach ESG variables into it, whether it's carbon credits and/or social credit score.

If you're Bill Gates or Klaus Schwab, that shouldn't worry you (for obvious reasons).

But what if you're an Average Joe ETF investor?

What if AI catches you "misgendering" (that's just one example of "hate speech") someone on social media and that gives the necessary power to BlackRock to legally confiscate your BTC ETF share?

What I'm trying to say is that you shouldn't worry about ordinary thieves. You should worry more about legalized thieves wearing suits, if you get my drift...

Even banksters won't steal you like an ordinary thief would do. They have legal ways to steal your wealth and there's nothing you can do about it (apart from not using these institutions).

I sincerely hope I'm wrong, even though I'm not an ETF investor. But what if I'm right?

Do you honestly expect no-coiners/woke/SJWs to criticize BlackRock for their dubious business practices? Rest assured they won't. They will support TechnoCommunism with a passion.

Again: I hope I'm wrong, but feel free to bookmark my post for future reference.

[cryptosize]

Another reason I can think of is the fee
I think some ETF collect fee as low as 0.1% to 0.25% not including Grayscale and this fee is smaller than Coinbase trading fee.

You're comparing apples to oranges.

Trading incurs a one-time fee, while ETFs charge you a yearly fee for merely keeping your assets (no CEX does that).

It's even worse when you're not even allowed to withdraw BTC, so you're forced to keep it there.

So every year BlackRock (or even worse Grayscale) take a certain amount of satoshis from you.

Most investors don't mind it though, because they measure their wealth in USD, not BTC.

[BlackHatCoiner]

if Coinbase (their custodian) goes down they have enough in insurance and additional funds to cover the losses

OK, that's what I thought. This is a problem, because if Bitcoin becomes the global reserve currency or asset, then we can't rely on other currencies or assets to insure it. At the moment, if 100,000 BTC are lost, they can pay $6B on paper and that's it. They can't buy what they can't insure, so even if they have $20T, they can't use half of it to buy bitcoin.

Am I wrong anywhere?

What I'm trying to say is that you shouldn't worry about ordinary thieves. You should worry more about legalized thieves wearing suits, if you get my drift...

I get it, I'm just thinking what happens in a scenario where these people get ripped off by a hacker. It has happened before, just not with BlackRock.

[tranthidung]

Coinbase is the custodian for Blackrock.

Coinbase is the custodian of many Bitcoin Spot ETFs, not only BlackRock.

• https://blockworks.co/bitcoin-etf
• It has information on custodian of Bitcoin Spot ETFs.

Generally we don't want to see such high centralization towards Coinbase from Bitcoin Spot ETFs.

[stompix]

Not an expert in ETF, what I found is ETFs aren't insured, this same to centralized exchange.

ETFs are not insured under FDIC like bank deposits, but that doesn't mean they can't be insured, just like a car or a cargo ship is not FDIC insured you can still have private insurance for it, it all depends on the investment fund, the custodian and the agreement between them. It's the value of the ETF shares that can't be insured, not the goods behind it.

This is not good at all. I did not know it is like this. I am using my knowledge to discuss it before. If they have it with Coinbase, I see no difference. But Coinbase may agree with Blackrock to hold the coins on cold storage with multisig. Bitcoin for ETFs should be very easy to protect.

Coinbase is the largest custodian, they have held close to 1 million coins with no problem for years, not only have they not been hacked but also nobody has still managed to track of their holding addresses. Same for Bitgo which until one month ago was the custodian for all of Salvador coins and half of Microstraegy coins are held by Fidelity with an undisclosed amount on Coinbase again.

if Coinbase (their custodian) goes down they have enough in insurance and additional funds to cover the losses

OK, that's what I thought. This is a problem, because if Bitcoin becomes the global reserve currency or asset, then we can't rely on other currencies or assets to insure it. At the moment, if 100,000 BTC are lost, they can pay $6B on paper and that's it. They can't buy what they can't insure, so even if they have $20T, they can't use half of it to buy bitcoin.

But receiving the cash value is how insurance works everywhere, you don't insure your 3 yo BMW with 50k km and in case of total damage, you get the same car with the same mileage, same for houses, painting, and any other assets, what you have insured is the value, not the actual assets.
As for not relying on other currencies, why not, the USD is the global reserve currency, and you can still have your deposit insured even if you're not in the US!

[btc78]

What's the difference between that, and a centralized exchange?

One is the investment itself while the other one is a platform.

You can not compare etfs to centralized exchanges because the former is exactly what is being bought and sold by itself already meanwhile centralized exchanges are just where investors come and go to do their transactions. They do not serve the same purpose.

Both are supposed to safeguard their setups, yet we frequently notice centralized exchanges suffering from cyberattacks, resulting in clients' funds being stolen.

Typically etfs are considered safer innterms if hacking as they rely on heavily towards banks. Centralized exchanges are also kind of banks but in crypto so I suggest to pick just one or the other.

[Churchillvv]

Your right in your observations that they seems almost the same but the truth is one they are level of security for the two. One is higher than the other.

The ETFs seems more secured than and individual having bitcoin in his or her account because I would call an exchange account a wallet. The reasons why the ETF is more secured is because is that they do not store this coins in an exchange, it must be in a very much secured wallet which either doesn't have one signature, so it will be hard for the coins to get hijacked in any way.

Apart from this I don't think reason why the ETFs will seems more safer than having ones coin in an exchange.

[cryptosize]

if Coinbase (their custodian) goes down they have enough in insurance and additional funds to cover the losses

OK, that's what I thought. This is a problem, because if Bitcoin becomes the global reserve currency or asset, then we can't rely on other currencies or assets to insure it. At the moment, if 100,000 BTC are lost, they can pay $6B on paper and that's it. They can't buy what they can't insure, so even if they have $20T, they can't use half of it to buy bitcoin.

Am I wrong anywhere?

What I'm trying to say is that you shouldn't worry about ordinary thieves. You should worry more about legalized thieves wearing suits, if you get my drift...

I get it, I'm just thinking what happens in a scenario where these people get ripped off by a hacker. It has happened before, just not with BlackRock.

It won't be lost, they'll use chain analysis to find out where the funds went.

Even if someone wanted to use a DEX to exchange stolen BTC for XMR, then there's not enough liquidity for 100k BTC.

It would be the heist of the century perhaps, but you wouldn't be able to do much with it (I don't mean daily expenses, but purchasing a big house, Lambo -> all these stuff require KYC).

As for not relying on other currencies, why not, the USD is the global reserve currency

It is the global reserve currency in 2024.

Will it still be the global reserve currency in 2034?

Nobody can say it for sure...

and you can still have your deposit insured even if you're not in the US!

Non-US investors don't have access to BlackRock's ETF or any other US ETF.

[BlackHatCoiner]

But receiving the cash value is how insurance works everywhere, you don't insure your 3 yo BMW with 50k km and in case of total damage, you get the same car with the same mileage, same for houses, painting, and any other assets, what you have insured is the value, not the actual assets.

Then, Bitcoin is more of an asset than a currency. You wouldn't ever insure a big pile of cash. You would just add them to your bank account, and this would convert them from an asset to a liability for both you and the bank (since it'd loan it afterwards). But, Bitcoin cannot turn into a liability for everyone, someone always have to have it as an asset; be it you, or Coinbase.

Isn't that correct?

As for not relying on other currencies, why not, the USD is the global reserve currency, and you can still have your deposit insured even if you're not in the US!

The way I understand it is: of course you can ensure my deposit. You can literally print it in the worst case scenario. You can't print a bitcoin, and that makes me wondering what happens in that case.

It won't be lost, they'll use chain analysis to find out where the funds went.

Mt.Gox hacker funds are still unspent: https://mempool.space/address/1FeexV6bAHb8ybZjqQMjJrcCrHGW9sb6uF. If the hacker is a good one, I doubt they'll find him.

[franky1]

pension funds cannot invest in bitcoin direct(until 2025 when banks can self custody bitcoin(research BIS)). however for now they can invest in ETF's/stocks/shares. and with laws allowing ETF means pension funds can invest in the price exposure of bitcoin without holding the actual bitcoin
this means people offsetting part of their salary into a pension they can get bitcoin price exposure pre-tax and then when selling the price exposure at their retirement age they can claim the gains tax free too

some naive many people dont care about the security of the coin itself as they believe that these companies that custodianise the coins are insured. so they think they are still due/owed 'real money' of equal amount to the price exposure or exchange rate no matter if the custodian loses the underlying assets

but what happens(and smart people know) is the share price tanks to 'pennies on the dollar' in such events of the custodian unable to cover the losses. so people then take the risk of the chances of such events occurring vs the possible gains over time

which is where people then think about all the gains of tax free discount at purchase of etf and tax free bonus at withdrawal of money. vs risk of custodian being hacked. which some people decide to not pension invest and instead take salary as normal post-tax and then buy real bitcoin and withdraw bitcoin to own private key for security taking the hit on the tax, just to not be in a custodians custody.. which some people also risk assess their own home set-up of securing their own keys from loss. to then assess the risks of self storing bitcoin risk of loss vs the pro-cons of pension investing into bitcoin price exposure of an etf

[cryptosize]

It won't be lost, they'll use chain analysis to find out where the funds went.

Mt.Gox hacker funds are still unspent: https://mempool.space/address/1FeexV6bAHb8ybZjqQMjJrcCrHGW9sb6uF. If the hacker is a good one, I doubt they'll find him.

This either means he cannot spend them (for reasons I mentioned above) or he's probably dead/lost the keys (same speculation about Satoshi's coins).

Someone could even send them to a burn address, but who would do that? Maybe for trolling purposes, who knows.

Most thieves steal money to become rich (high risk -> jail, high reward -> luxurious life), otherwise there is not much point in the first place. Why risk it if there's no reward?