Bitcoin ETFs, Counterparty Risk & EO 6102
We wanted to address something we think not enough people are talking about in light of the recent Bitcoin ETF approvals….
Counterparty risk
Many are shouting from the rooftops that Bitcoin ETFs offer a lower risk alternative to taking self-custody of your bitcoin. But surely, we all know by now that nothing in life is risk-free. So, are ETF proponents being completely transparent about the risks of holding a paper promise of bitcoin vs holding the real thing?
We don’t think so….
One of the main risks associated with holding your wealth in a spot Bitcoin ETF rather than in self-custody is counterparty risk.
You are accepting the risk that the party storing your bitcoin will always operate with your best interests in mind and that you will always have access to your bitcoin. In our opinion assuming that this will remain true, and that they will always work in your best interest is at best naïve and at worst, foolish.
A look at the counterparties in question should give you pause for thought. For example, Coinbase, the custodian of choice for most of the ETF products have a long history of promoting garbage financial securities to their customers.
Not only that, Coinbase hardly have a perfect cyber security record. They suffered a data breach affecting over 6,000 customers just at the tail end of 2021 when hackers found vulnerabilities in their SMS based 2 factor authentication system. Are we sure it’s sensible that they now hold the keys to a huge honeypot of Bitcoin?
How about BlackRock one of the major ETF providers?
Well, they currently own the vast majority of weapons manufacturers, pharmaceutical companies and the mainstream media. This organisation directly profits from conflict, sickness, and misinformation.
Ask yourself… Will these people truly always have my best interests at heart?
We’re not convinced…
“So, what are you saying? That Coinbase or BlackRock might just steal our Bitcoin? They can’t do that! That would be illegal!”
We get it…. It sounds outlandish. There are rules in place to protect investors, right? Well yes, there are. But what happens if the rules suddenly change?
Let’s look at a lesson from history and the signing of Executive Order 6102 by President Frankling D. Roosevelt in 1993. This executive order forbade the hoarding of gold coin, gold bullion and gold certificates within the continental United States.
The rationale for the president to issue such an order? Well in 1933 the United States was in the early years of the Great Depression and entering a long, dark period of economic stagnation.
And who did the US Govt blame for this economic malaise? Well, it surely couldn’t be the Governments poor economic policy, so instead they pinned the blame on anyone prudent enough to have saved their wealth in gold. It was their fault for ‘hoarding’ a superior monetary asset.
Citizens were forced to sell their gold and any gold certificates held at the Federal Reserve back to the US Govt at $20.67 per Troy ounce. The penalty for disobeying this order? A $10,000 fine (now worth north of $250k) or ten years imprisonment or both!
Seems reasonable…
Just one year later the US Government would then issue the Gold Reserve Act changing the statutory gold content of the U.S. Dollar from $20.67 to $35 an ounce. This essentially devalued the dollar so that less gold was required to back it, allowing the Federal Reserve room to print more paper money in a short-sighted attempt to boost the economy by debasing the US dollar.
From here on in, all international transactions by the U.S Treasury were calculated with the new valuation of gold at $35 per Troy ounce. This was more than a 69% increase on the amount they forced US citizens to sell it for. To really rub salt in the wound they would then go on to debase the currency they gave to their citizens in exchange even further.
Ouch!
If reading this sends a shiver up your spine, you’re not alone. How can we be certain that the US Government won’t decide to misappropriate Bitcoin in the name of economic stability? Sure they might buy it from you in exchange for dollars, but they will be the ones setting the price.
If they do decide to go down this road, where do you think they might look first? That’s right…. The Bitcoin ETFs.
History rarely repeats, but it often rhymes, and counterparty risk has a habit of creeping up on you without you noticing.
As they say… ‘Not your keys, not your coins!’
ETFs AKA ‘Bitcoin Lite’
What’s apparent to us and hopefully apparent to you is that Bitcoin ETFs are far from being risk-free. What’s more you expose yourself to this additional risk at the expense of some of the most powerful benefits of owning bitcoin.
Bitcoin ETFs are essentially ‘Bitcoin Light’
Spot Bitcoin ETFs come with no transparency, no ability to transact, no censorship resistance and none of the freedoms that give Bitcoin its value in the first place
Bitcoin…. But without the flavour. Price exposure with none of the innovation.
Bitcoin in self-custody however us like un-adulterated glacial spring water. Once you taste it, you’ll realise there is no comparable substitute.
If you’re looking to use Bitcoin to its full potential, then we are here to help. Our expert guidance will help you safely self-custody your bitcoin and enjoy the full benefit of borderless, censorship resistant generation-spanning wealth.
Don’t put it off. Become a sovereign individual today.
Learn from our 25 years of cybersecurity expertise
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