Key Points
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A major incident involving a highly regarded self-custody wallet has resulted in stolen Bitcoin holdings.
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Spot Bitcoin exchange-traded funds have registered $382 million in inflows in the first two days of this week.
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The largest and most well-known asset managers will likely benefit most.
- 10 stocks we like better than Bitcoin ›
Since the start of August, Bitcoin‘s (CRYPTO: BTC) price has fallen about 1% (as of Aug. 5). This small move doesn’t take way from the fact that Coinkite, the maker of a highly regarded self-custody hardware wallet called Coldcard, is experiencing an ongoing hack that has so far seen $130 million worth of customers’ Bitcoin stolen.
At the same time, money has been flowing to Bitcoin spot exchange-traded funds (ETFs), with $382 million of combined inflows registered on Aug. 3 and Aug. 4. If you’re figuring out which ETF is the best one to buy, continue reading.
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The Bitcoin network is untouched
Investors must remember that the underlying Bitcoin blockchain itself wasn’t hacked. It continues to operate as it always has.
However, Coinkite is now in hot water. Its Coldcard wallet, which enabled storing private keys offline, was viewed as the gold standard in terms of security. That perception is no longer the case.
Affected Coldcard users believed their recovery seed phrases were generated using a true random number generator, which made it almost impossible to derive the private keys. But for certain wallets, this wasn’t the case. Users who lost Bitcoin discovered that their recovery seed phrases weren’t as random as they thought, making it easier for hackers to exploit the flaw and steal funds.
Bitcoin’s price hasn’t tanked since news of the hack broke. This indicates that the market understands that the underlying blockchain isn’t at fault.
Trust matters when it comes to money
This incident should be a blow to proponents of cold storage, particularly those who use products from businesses most people have never heard of. It’s simply not realistic for every single person who wants Bitcoin exposure to spend the time to become technically savvy enough to properly self-custody their crypto.
Consequently, the attention goes to the institutions, the group that Bitcoin was created to undermine. There is certainly a meaningful percentage of investors who will trust large financial services businesses with their capital. The Coldcard hack adds fuel to this argument.
The largest and best-known Bitcoin spot ETFs are likely to continue benefiting. Of the $382 million in inflows during the first two days of this week, 74% went to the iShares Bitcoin Trust, with 14% going to the Fidelity Wise Origin Bitcoin Fund. These ETFs are sponsored by two massive investment companies with trillions of dollars in assets under management.
Between these two, I don’t believe investors can go wrong. They carry the same 0.25% expense ratio. This is the price you pay for outsourcing the custody of your Bitcoin.
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Neil Patel has positions in iShares Bitcoin Trust. The Motley Fool has positions in and recommends Bitcoin and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
