Bitcoin ETFs Enjoy Stronger Inflows Following Crypto Hack

Bitcoin exchange-traded funds (ETFs) are reportedly seeking stronger inflows following a recent crypto hack.

The U.S.-listed ETFs, which provide investors with exposure to bitcoin’s price without requiring them to hold the coins themselves, drew more than $850 million last week, Bloomberg News reported Monday (Aug. 10).

These inflows, the highest level since April, came after the revelation of a breach involving Coldcard wallets made by Coinkite that drained about $130 million in bitcoin. According to Bloomberg, this has led some analysts to argue investors could be seeking the shelter of regulated ETFs.

“The Coldcard hack could make spot Bitcoin ETFs a more appealing option for some investors, including even some longtime Bitcoin holders,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.

As Bloomberg noted, cold wallets have historically been seen as one of the safest methods of digital asset storage. These devices are kept offline and designed to make crypto less susceptible to cyberattacks.

But in the case of Coinkite, a flow in the company’s firmware made it easier for attackers to predict security information, allowing them to take control of affected wallets and steal crypto without accessing the Coldcard devices.

The report added that moving to ETFs doesn’t eliminate security risks, as a fund’s cryptocurrency custodian could still be breached.

“There’s no guarantee against losses if an ETF custodian were ever compromised, but such an incident would likely trigger immediate regulatory scrutiny and a law enforcement investigation,” Balchunas said.

Writing about the Coldcard breach last week, PYMNTS argued that the incident demonstrates that the most important security questions go beyond the blockchain, and extend to the “hardware, software, governance and operational controls” that determine who can present a valid signature.

“It’s very reminiscent of what happened in the early 2000s with payment innovators,” Citi Global Head of Digital Assets, Treasury and Trade Solutions Ryan Rugg said during a recent episode of “From the Block,” the PYMNTS podcast. “Initially, people thought they were going to put banks out of business. Instead, they ended up running on bank rails.”

“Removing reliance on intermediaries can help with improving on speed and fiat settlement,” Rugg said in a separate episode of the podcast, emphasizing that regulators and industry players will need clarity on how the new account works, how it will be overseen and how operations will work.