Topic: What's the difference between Coinbase and an ETF? (Read 299 times)

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.
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And who's saving the commercial bank, or at least its deposits, when it goes bankrupt? Taxpayers. Commercial banks can't print the pile of cash you want to insure out of nothing, but the state can guarantee you that in case of the bank going out of business, they can cover your losses, and even if it doesn't have the money to do that (worst case scenario), it can either print it, or borrow it in exchange for bonds.

I think this is the big difference between ETF and simply storing it in your Coinbase account. In the former, in the worst case scenario your bitcoin is insured. If their partners (e.g., Coinbase) are hacked, you'll be refunded in fiat currency.

I can trade in and out of an ETF with basically no cost and fast within my larger portfolio.

I'm not a fan of exchanges for the same reasons everyone else is, but Coinbase seems to be used/trusted by some major players. But I am sure those custody eaccounts have allot more legalize surrounding them.

If you can put your money in hands of others and believe that they will do the right things, go ahead.

If you can not do this, you can simply learn about Bitcoin, wallets, setup, backup, recovery and learn more about security for your time on Internet, for your devices and you can secure your Bitcoin wallets and keep your bitcoins safely by yourself. It's much better than trusting someone, some entities.

Exchanges and companies can be more professional than you but they can do either right things or shady things. There are many layers of protection to prevent shit happens with Bitcoin Spot ETFs but just like many industries, there are ways to exploit and shit can kick off a black swan event anytime.

Enron: Scandal and Accounting fraud. It's an example.
FTX is another example and it's in cryptocurrency industry.

To be honest, I live in a country where people rarely knew what ETF was but thanks to the marketing of local banks, now many people knowand use it. For investors, ETF is really a nice addition. For example, my local bank offers me the ability to buy and sell ETFs from my mobile and internet bank, with a few clicks. In seconds I can move my funds in ETFs and opposite. After the ETF approval, I have the ability to buy and sell Bitcoin with my bank account within minutes. Till ETF approval, I had to deposit my money on an exchange, buy Bitcoin, trade, convert Bitcoin to USD and then withdraw. Now I can do it inside my bank account. This is definitely very comfortable. Because of ETFs and the ability to trade them via local internet and mobile bank, a lot of people got introduced to Bitcoin and this is one of the positive sides of ETFs that we can't deny. But on the other hand, it's taking over it and losing its purpose of being your own bank. Too much centralization to be honest.

Well, I guess not no difference since an ETF makes it so you can buy into "Bitcoin" with an ordinary brokerage account. But it's just a more convenient way of doing the same thing.

It makes no sense but you can technically insure it, and you can have your bank insure the pile of cash in your safe locker inside the bank, it's a pain in the ass for the compliance, you pay the box and insurance and you don't get interest but it can be done theoretically.


Yup, pretty much.


Commercial and private banks can't print money, and that's why commercial banks go bankrupt as they have done it a hundred times already in history, the only one that can print money is the CB and a CB is not taking deposits, the limit you have insured under the different scheme is how much money they can afford to pay if printing would have been that easy you wouldn't have had any bank run or bank collapse in history, right?

ETF may be suitable for person if capital gains is the only that he wants. However, people who cares about adoption and idea should always buy real btc instead

Correct, I just wanted to mention an example of a big money heist, which in today's value would be about the same orders of magnitude as the BlackRock bitcoin reserves.

But, if Coinbase goes bankrupt or hacked, you don't have fund insurance, as with the ETF. I think that's the big difference between the two. Buying bitcoin in Coinbase (and leaving it there) is the equivalent of buying Coinbase IOUs, where in the ETF, you're buying a Coinbase IOU, but if Coinbase goes bankrupt, you're covered by insurance.

If there's practically no difference, then why did people demand ETF like that? We have bitcoin IOU since the beginning. It probably has to do with insurance. A person might want to save in bitcoin, but not like the process of entrusting these savings to an entity with no insurance. They'd rather have the option of insuring their deposit, similarly as to bank's deposits.

Bitcoin is a meme(coin)? Interesting take.

I'm pretty sure a banker wouldn't like it to be a dentist...

It's much better to be able to be the sole issuer of money (unlike dentists who don't have a monopoly in their profession). You print a piece of paper that in reality is worth 10 cents and you claim it's worth $100 or even €500 or 1000 CHF. Then people are forced to enter the rat race and never escape.

I don't know if it's a conspiracy or not, but I'm pretty sure 80% of human beings are deeply insecure to trust themselves, therefore bankers (and the state) fill the niche of providing "security".

There is some debate about the advent of civilization and whether it really benefitted us.

Homo Sapiens started as a decentralized species (hunter gatherers/tribes of 150 people) that is slowly leaning towards centralization (urbanization).

It's not just CEX and mining pools that promote centralization... forming cities/armies/governments 10k years ago was the start of centralization.

I understand why people did it, you gain so much power compared to small tribes of hunter gatherers. Same for mining pools vs solo miners.

From the standpoint of the average consumer, there is no difference. It's just a different way of betting on the Bitcoin meme, which is all most people actually want to do with Bitcoin.

As for why consumers want this, I've discussed this before in the Anon Paradox: consumers want to keep their "big" money someplace... safe--even if they would like to keep their "small money" someplace anonymous.

In other words:

• Most people don't want to hide their life savings in a mattress.
• Most people don't want to put their retirement savings inside of their iPhone where they can simply lose it in a landfill.
• Most people would be afraid somebody might physically steal it from them if they kept their own savings or major holdings on their person.
• Most people don't want to build a mini version of Fort Knox in their spare bedroom.
• Most people don't like the idea of having something in their house that others might kill for.

Because of this, most people use an amazing invention of civilization called, "specialization". In other words, you work all of your life to be a great dentist, and somebody else focuses their life's efforts on, say, keeping your money safe.

That's why we have banks and other financial institutions. It's not a government conspiracy, it's just a product that consumers want and need.

And Coinbase and the ETF are really just variants of the same product.

The obvious difference between holding Bitcoin on Coinbase and owning shares of the ETF is that the exchange traded funds have a management fee attached to them whereas holding your coins on Coinbase is free...

Then there's also the need to secure a Coinbase username/password as opposed to buying an ETF in your traditional brokerage account.  Your brokerage account also might allow for shorting or options trading (I don't think options are live on the ETFs yet) or even tax free gains if it's inside a Roth IRA.  Each has their own benefits and drawbacks, but if you're investing a lot of money over a long time frame and not using a retirement account, using Coinbase and avoiding that management fee is probably the way to go.

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?

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

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?

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.

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.

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).

It is the global reserve currency in 2024.

Will it still be the global reserve currency in 2034?

Nobody can say it for sure...

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

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.

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.
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.

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.



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.


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!

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.