A hardware wallet vulnerability that Galaxy Research estimates could ultimately cost Bitcoin holders more than $130 million may reinforce one of spot Bitcoin ETFs‘ biggest selling points: institutional-grade custody.
Bloomberg Intelligence ETF analyst Eric Balchunas believes the incident could accelerate a shift toward spot Bitcoin ETFs as investors reassess the risks of safeguarding their own crypto assets.
In a post on X, Balchunas noted: “NEW: Coldcard hack could spur greater migration to ETFs. What used to be seen as a bug by coiners (dorky boomer TradFi) may all the sudden seem like a feature (large, established financial institutions with decades of experience safeguarding client assets) esp vs a Canadian co w/…”
Galaxy Research identified 1,596 Bitcoin stolen from more than 7,300 addresses across three confirmed waves of attacks linked to flawed seed generation on multiple Coldcard hardware wallet models. Including a suspected fourth wave, total losses could reach 2,055 Bitcoin, worth about $130 million at current prices.
The attack remains active, with roughly 90% of the stolen Bitcoin yet to move, while the firm is working with U.S. law enforcement, crypto exchanges and cybersecurity investigators to track attacker-controlled wallets.
Custody Debate May Shift in ETFs’ Favor
Since the launch of U.S. spot Bitcoin ETFs, critics have argued that investors sacrifice one of Bitcoin’s defining features—self-custody—in exchange for the convenience of traditional investment vehicles.
The Coldcard exploit could alter that perception.
Unlike individual investors responsible for securing private keys and seed phrases, ETF assets are held by institutional custodians with dedicated cybersecurity teams, operational controls and regulatory oversight. While institutional custody is not immune to cyber threats, it offers layers of protection and accountability that retail investors may find difficult to replicate.
The incident also highlights the scale of ETF custodians. Most U.S. spot Bitcoin ETFs rely on established firms such as Coinbase Global Inc (COIN), Fidelity Digital Assets, Gemini Space Station Inc (GEMI), BitGo Holdings Inc (BTGO) and Bank of New York Mellon Corporation (BNY) to safeguard assets.
ETFs That Could Benefit
The largest beneficiary of any custody-driven shift could be the iShares Bitcoin Trust (IBIT), the world’s biggest spot Bitcoin ETF. It uses Coinbase as its custodian.
Other major funds include the Fidelity Wise Origin Bitcoin Fund (FBTC), which uses Fidelity Digital Assets; the Bitwise Bitcoin ETF (BITB); ARK 21Shares Bitcoin ETF (ARKB); Grayscale Bitcoin Trust (GBTC); VanEck Bitcoin Trust (HODL); Franklin Bitcoin ETF (EZBC); Invesco Galaxy Bitcoin ETF (BTCO); and WisdomTree Bitcoin Fund (BTCW).
Rather than managing hardware wallets, firmware updates and recovery phrases, investors in these funds gain Bitcoin exposure through brokerage accounts while custody responsibilities rest with regulated financial institutions.
The Coldcard incident is unlikely to persuade committed Bitcoin advocates to abandon self-custody. However, it could reinforce the appeal of ETFs for mainstream investors and newcomers who view securely storing digital assets as a barrier to entry.
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