Ten U.S. asset managers have initiated trading of substantial sums in spot Bitcoin exchange-traded funds (ETFs). For investors considering how the issuers secure the underlying assets of their ETF products, Ophelia Snyder, co-founder of 21Shares, provided insights. 21Shares is collaborating with ARK Invest for the ARK Invest and 21Shares Spot Bitcoin ETF (ARKB). Snyder explained that the Bitcoin custody products used by spot Bitcoin ETF providers are distinct from what retail users experience on cryptocurrency exchanges.
While exchanges often pool customer assets in omnibus accounts, Snyder highlighted that ARK and 21Shares' spot Bitcoin ETFs utilize strictly segregated accounts. She emphasized that the funds go into specific wallets belonging to the issuer, employing multiple wallets to avoid a single attack surface. According to Snyder, this approach enhances security and minimizes risks, as compared to the omnibus accounts used by exchanges. Additionally, for its European offerings, 21Shares diversifies custodians for improved security.
Snyder stated that spot Bitcoin ETFs are safer from a bankruptcy perspective, highlighting mechanisms that allow trustees to recover assets directly from the custodian even if the issuer disappears. To further enhance security, 21Shares employs multiple authorization steps, ensuring that no single individual within the organization can move assets independently. This security measure involves splitting the private key into multiple parts stored in geographically distributed vaults.
Snyder stressed that Bitcoin ETF providers must treat Bitcoin differently from other assets, keeping the Bitcoins offline in wallets that never enter the internet. The first U.S. spot Bitcoin ETF was approved on January 10, 2024, and began trading the following day. At launch, eight out of ten spot Bitcoin ETF providers relied on Coinbase custody, while others, like Fidelity Investments, opted for proprietary solutions. VanEck chose to escrow underlying BTC to Gemini, co-founded by the Winklevoss twins, who were among the first applicants for a spot Bitcoin ETF with the SEC in 2013.
