Bitcoin is becoming centralized in ETFs, making the cost of hacking rise

[LuckyCrypto777]

According to River statistics, the current Bitcoin distribution looks like this:
Individuals: 13.98 million (66.6%)
Companies: 1.63 million (7.8%)
Funds and ETFs: 1.44 million (6.9%)
Governments: 435,000 (2.1%)
Satoshi: 968,000 BTC (4.6%)
Lost Bitcoin (estimate): 1.62 million (7.7%)
Remaining to be mined: 919,000 (4.4%)



Bitcoin is becoming increasingly concentrated in ETFs, making the risk of custodians being hacked more and more serious. There aren't many of them: Coinbase Custody, Fidelity... A hacker could make a lot of money.
Perhaps that's why laws are being considered in the US, which, if I understand correctly, will further break up the custodian monopoly?
And lead to greater deconcentration of Bitcoin in the ETF space.

[_act_]

I do not know if it is all the ETF companies that are saying this, but they said the funds are stored on a cold wallet. But the hackers are very wise, I think there could be a day that one will be hacked as there will be huge amounts of bitcoin on the ETF wallet. But not only bitcoin, there are other coins that has ETF already which hackers will also he looking for ways to breach.

But it is good to know that many of the ETF companies have insurance

[Questat]

Bitcoin is becoming increasingly centralized in ETFs, making the risk of custodians being hacked more and more serious. There aren't many of them: Coinbase Custody, Fidelity... A hacker could make a lot of money.

No, not like that. Bitcoin is still decentralized, the network and system haven't changed. what only happened is that the custody is now more concentrated and that is understandable since not everyone is confident to hold their Bitcoin in their own wallet. But never link that to Bitcoin itself as it remains as it is.

[stompix]

Individual wallets and exchanges are hacked on a daily basis, till date no ETF or actual custodian service has been hacked.

Also, there is no centralization happening; because of that, eveyone is free to do what he wants with his coins and somebody owning 50% of them doesn't make it centralized, just as Bitcoin wasn't centralized in mid 2010 when Satoshi owned half of them.

And lead to greater decentralization of Bitcoin in the ETF space.

Yeah, what could be better for Bitcoin than some ETF cold wallet or MSTR wallet being hacked and all coins stolen?
Are you that dumb?

[ZeroVinsonN]

Bitcoin is becoming increasingly centralized in ETFs, making the risk of custodians being hacked more and more serious. There aren't many of them: Coinbase Custody, Fidelity... A hacker could make a lot of money.

No, not like that. Bitcoin is still decentralized, the network and system haven't changed. what only happened is that the custody is now more concentrated and that is understandable since not everyone is confident to hold their Bitcoin in their own wallet. But never link that to Bitcoin itself as it remains as it is.

I think that when he said centralized he didn't mean it luke bitcoin was becoming controlled but more about how too much bitcoin is concentrated on very few wallets, saying centralized might have seemed like a poor choice of wording but a major hack on these concentrated wallets will have the same effect as it would on a centralized asset.

But it is good to know that many of the ETF companies have insurance

It's still to big a risk, insured or not, after all there is only so much money whatever company is insuring them will be able to pay back depending on the size of the hack.

[LuckyCrypto777]

Bitcoin is becoming increasingly centralized in ETFs, making the risk of custodians being hacked more and more serious. There aren't many of them: Coinbase Custody, Fidelity... A hacker could make a lot of money.

No, not like that. Bitcoin is still decentralized, the network and system haven't changed. what only happened is that the custody is now more concentrated and that is understandable since not everyone is confident to hold their Bitcoin in their own wallet. But never link that to Bitcoin itself as it remains as it is.

You expressed my thought correctly, I simply chose the wrong word. Of course, the structure of the situation hasn't changed. What happened is that its storage has become centralized.

Yeah, what could be better for Bitcoin than some ETF cold wallet or MSTR wallet being hacked and all coins stolen?
Are you that dumb?

I mean deconcentration

[stompix]

Yeah, what could be better for Bitcoin than some ETF cold wallet or MSTR wallet being hacked and all coins stolen?
Are you that dumb?

I mean deconcentration

It doesn't matter what you thought of it or how you worded.
NOTHING good will come out of a hack of a major institutional holder!
- major money will freeze investments
- the public image will be severely affected
- say goodbye to a state reserve made out of Bitcoin
- last but not least, throwing half a million coins on the market, where do you think 50 billion to keep the price afloat will come from?

[Alpha Marine]

I mean deconcentration

A hack on any ETF company won't cause more decentralisation or deconcentration.
And the new policies of the SEC from the link you posted in the OP won't do that either.
CEXs are hacked frequently, why hasn't that made people focus on decentralisation? Do you think people who keep their money with ETF companies don't know that there is a risk of being hacked? They are insured, so it mitigates the risk for them. That is an advantage self custody does not give them.
So if hacks on exchanges does not promote decentralisation, why do you think a hack on an ETF company will when the people who keep their funds there are already protected?

[shinratensei_]

Are we really pretending custodian is some kind of interconnected system of wallet and once hacker could breach it, everything got hacked? It could be a cold wallet stored in some ultra secure place that don't connect to each other, each custody might securely isolate the bitcoin in custody and use multi signature, air gapped device, and so on. It feels like you're worrying about the wrong thing fr, I think you're thinking of institutional grade custodian like coinbase custody operates their custody services like a hot wallet.

[cryptoaddictchie]

Most hack happened on individual accounts than the bitcoin holding of custodians. These companies are not that noob to fall on hacks easily and security aspect.  Weve still be able to retain the decentralized nature of bitcoin as you can see the range of holdings of users which the highest still belong to users.

These Bitcoin ETFs wouldnt be a distraction  IMO. But obviously they will be the target of the hackers since they can get potentially huge sums. But I dont see any news where a custodian of ETF has been compromised so that means its invalidate the idea about the OPs topic.

[Audrey Simmons]

Governments: 435,000 (2.1%) - Are these seized Bitcoin?

Considering we are approaching a second decade, if your data is correct, individual percentage is still high for me, and I think ETF are going to do just fine, there is definitely some kind of coverage, security and privacy and just in case, ways they can be able to recover funds if something ever happens.

More concerns should be raised on individual protection, knowing hackers are a threat to 66% of  Bitcoin held by individuals.

[savetheFORUM]

You have to remember, those "funds and ETF's" are usually "individuals" as well. Meaning, instead of me going to buy Bitcoin, I pay BlackRock to buy Bitcoin for me instead. Which is the entire point of this.

I understand it may not be that much of a great situation, but the reality is that we are still seeing the same situation.

So while I understand that it looks like something different from individuals on paper, in reality, if I tell BlackRock to sell, it sells my coins; if I tell them to buy, they buy for me. I just pay a fee for that, but it is the same as me buying or selling.

[CryptopreneurBrainboss]

Bitcoin is becoming increasingly concentrated in ETFs, making the risk of custodians being hacked more and more serious. There aren't many of them: Coinbase Custody, Fidelity... A hacker could make a lot of money.

Serves them right, as people keep losing money to all this hacks then they'll be forced to get informed on what self custody is all about and get reason why custodial wallets for platforms aren't the ideal places to hold Bitcoin or do investments with. Bitcoin is getting more mainstream so it's not surprising that they keep thinking that Bitcoin can be approached from the aspect that other currency/assets were  approached from which is to centralized it more to control but that can't happen with Bitcoin. As more Bitcoin keeps getting held in centralized platforms so will the hacks continue to happen and its effects is only going to be temporary to the market as the corrections will be bought up and the market recovers back. Untill they're ready to buy Bitcoin and hold the right way then they'll keep getting hacked.

[Alphakilo]

You have to remember, those "funds and ETF's" are usually "individuals" as well. Meaning, instead of me going to buy Bitcoin, I pay BlackRock to buy Bitcoin for me instead. Which is the entire point of this.

I understand it may not be that much of a great situation, but the reality is that we are still seeing the same situation.

So while I understand that it looks like something different from individuals on paper, in reality, if I tell BlackRock to sell, it sells my coins; if I tell them to buy, they buy for me. I just pay a fee for that, but it is the same as me buying or selling.

Many of these ETF companies have insurance, so far I know and it's good because they know how a hack on their centralized systems can become disastrous. Hence why newer regulations and the demand from the market is suing for multiple custodians.

It's good to know how the ETF industry is making a move towards multiple custodians as I said and that's including banks and multi-sig providers, for better security, because this makes just one or two custodians a real target for hackers. So in essence Bitcoin's base layer will continue to remain decentralized as is the original architecture of design to ensure safety and the power of self custody control if at all.

[TastyChillySauce00]

You have to remember, those "funds and ETF's" are usually "individuals" as well. Meaning, instead of me going to buy Bitcoin, I pay BlackRock to buy Bitcoin for me instead. Which is the entire point of this.

I understand it may not be that much of a great situation, but the reality is that we are still seeing the same situation.

So while I understand that it looks like something different from individuals on paper, in reality, if I tell BlackRock to sell, it sells my coins; if I tell them to buy, they buy for me. I just pay a fee for that, but it is the same as me buying or selling.

Yep, that's more or less the ownership structure, the "individuals" who buy the ETF own shares of the trust. The company which is the issuer does not own the bitcoin which is on the custody but only acts as manager of the product, not great compared to owning bitcoin in our own wallet, but it's a needed product for customers with different preferences.

[joniboini]

Hence why newer regulations and the demand from the market is suing for multiple custodians.

I assume you meant using? Suing for multiple custodians don't make sense if that's what the customers prefer. I'm not sure if I'm included in this group of users though, since I'll always prefer storing coins on my own wallet. Regardless of how much ETF are available on the market, custodians or third-party insurance services (or anything that controls a large amount of money) are targeted from many angles. If anything social engineering is probably one of the biggest risk. Just recently we got big company sending some sensitive data to someone impersonating a government agent with little to no security measures.

[M47AK16]

You have to remember, those "funds and ETF's" are usually "individuals" as well. Meaning, instead of me going to buy Bitcoin, I pay BlackRock to buy Bitcoin for me instead. Which is the entire point of this.

I understand it may not be that much of a great situation, but the reality is that we are still seeing the same situation.

So while I understand that it looks like something different from individuals on paper, in reality, if I tell BlackRock to sell, it sells my coins; if I tell them to buy, they buy for me. I just pay a fee for that, but it is the same as me buying or selling.

Yep, that's more or less the ownership structure, the "individuals" who buy the ETF own shares of the trust. The company which is the issuer does not own the bitcoin which is on the custody but only acts as manager of the product, not great compared to owning bitcoin in our own wallet, but it's a needed product for customers with different preferences.

Which is why it means "funds" could be some rich companies; I am not against that, but ETF means that it is also individuals. The whole "Satoshi has 1 million" thing is doubted as well, since there are no single wallets with a million bitcoins in them; it is just a myth that people believed in years ago, and we have not seen any proof of it so far.

We can simply say "early miners hold 1 million", but it doesn't need to be Satoshi; dude had one pc he was mining, and we are talking about 20+ thousand different wallets, so not all of it could be him; some could be different. And considering that is basically "gone" is risky, because some days you will see in the news "untouched wallet for 10 years starts to move" suddenly. That is why I would say roughly 15 million bitcoins are owned by regular people like you and me. Rest could be either gone or company or governments.

[Nathrixxx]

What are they hacking through, is it the market price or the way of increasing applicable use of Bitcoin market value with ETF, I don't want to believe that bitcoin is becoming centralized by any way even in it applications, ETF still have to depend on the market value before they can be profitable or result in losses. We have to be more careful about what we see concerning Bitcoin in order not to discourage people over the market conditions.

[KiaKia]

Wait, I'm kinda lost here, ETF companies aren't one man organisation right? Correct me if I am wrong, I expect such companies or organisations to hold their Bitcoin in Multisig Bitcoin wallets..

What do you guys think? Am I wrong? More than one person should be holding the key of such Bitcoin wallet and it's good bye to hackers trying any funny acts.

When it comes to ETFs I think cold storage isn't good enough, they should all consider Multisig, period.

[Agbe]

Bitcoin is becoming increasingly concentrated in ETFs, making the risk of custodians being hacked more and more serious. There aren't many of them: Coinbase Custody, Fidelity... A hacker could make a lot of money.
Perhaps that's why laws are being considered in the US, which, if I understand correctly, will further break up the custodian monopoly?
And lead to greater deconcentration of Bitcoin in the ETF space.

ETF thought centralizing bitcoin will help them to regulate bitcoin but they have also forgotten that before Satoshi Nakamoto made bitcoin decentralized, he has consider many things. This year is recording the highest of bitcoin hacking. Since when EFC came to effective to the crypto world in January 10 2024. It has lost about $1.26billion across 246 cases.

Crypto Security Losses Hit $1.26B in Q3 2024

Crypto security losses totalled $1.26 billion across 247 incidents in Q3 2024, with September alone accounting for approximately $769 million of that figure.

The quarter's largest single event was the Bitget hack, which resulted in a $388 million loss and pushed cumulative losses past the $1 billion mark for the period.

The scale of Q3 losses underscores the persistent security risks across centralised exchanges and broader crypto infrastructure, as high-value incidents continue to dominate quarterly loss figures.

Read more

And again US SEC is another section again to look into. All this came in as a news to me in the 1st of October 2026.

US SEC proposes crypto custody framework in wave of regulatory actions

The US Securities and Exchange Commission proposed a custody framework on Oct. 1 that would allow investment advisers and regulated funds to hold crypto under rules specifically designed for digital assets.

The proposal is the latest of nine agency actions taken since Aug. 18, covering much of a crypto asset's lifecycle — from fundraising to safekeeping. The moves signal a broader shift toward structured regulatory oversight of the crypto industry at the federal level in the United States.

Read more
Non custodial approach is the best in the crypto holding system.