A Bitcoin ETF is coming, whether you like it or not.
You might be excited at the stamp of approval this gives bitcoin from the old guard. It will also allow many investors to much more easily gain exposure to bitcoin through current accounts at big banks. These are huge positives for a new commodity that’s rapidly gaining recognition as a revolutionary instrument for storing value over time.
However, as with many financial products on Wall Street, the people of Main Street should tread with caution. Big banks are not known for having the interests of the average Joe in mind.
The biggest hidden danger of a bitcoin ETF, though, goes deeper than the big banks. It goes all the way to the most powerful governments and the source of the world’s current reserve currency.
We all need to ask ourselves before we buy any bitcoin ETF: At the end of each day, who actually holds your bitcoin?
This question may seem innocent today, but history tells us it could be very important in the near future.
Where Are Your Assets Held?
For all the evolution in “fintech” over the last decade to make investing easier — from robo-advisors to gamified trading apps — the underlying structure has not changed.
Why? Mostly because regulation stipulates who can hold what assets and how that ownership is proven and governed, leading to a lack of innovation in old, paper-based processes. The banking industry does not have much incentive to upgrade the back end of their systems. Most of the supposed innovation in fintech just hides the old world behind a digital veneer.
The assets you buy and check in your brokerage apps — stocks, bonds, ETFs — are held by regulated custodians for you. Most of the time, this is not a problem; it’s actually more convenient for you. Can you imagine if you had to bring a stock certificate to a bank branch every time you wanted to sell a share? Using regulated custodians in the back with a digital interface on top makes trading much more…