🏛 [Analysis] Bitcoin ETFs, custodians, and collateral – Nik Bhatia

Real money encompasses over a hundred asset managers with at least $100 billion AUM, including a dozen with over $1 trillion each, absolutely dwarfing fast money. Real money managers act as fiduciaries and have strict investment guidelines and thick bureaucracy preventing short-term flexibility of investment strategy. They do an extensive review of all counterparties and use large custodians. They do not custody bonds and equities themselves, and won’t do so with bitcoin either. Hopefully, they will hire custodians offering verifiable NAVs. &nbsp Net Asset Value describes the value of underlying assets in an investment vehicle. Funds can allow investors to verify its NAV by disclosing public keys to investors on a regular basis. If investment vehicles continuously disclosed public keys and developed a reputation of doing so honestly, we would see a huge leap forward in the relationship between bitcoin and traditional financial institutions. Similarly, ETF managers can do only one thing to convince the market they are good actors: verifiable NAVs via public key disclosure. This can assuage fears of fractionally reserved bitcoin and artificial supply inflation. Meanwhile, institutional investors looking for increased privacy and control will elect to hold bitcoin with an established custodian rather than invest in an ETF. This type of activity will be reserved for investors that prefer to have a single counterparty separating themselves from their bitcoin. The custodians will have an immense responsibility of security and a fiduciary duty to protect the client’s private keys at all costs. Custodians may choose to comingle bitcoin balances or they may choose to keep the bitcoin allocated in specific public keys corresponding to individual clients. Once custodians and ETFs have custody of large quantities of bitcoin, they will have powerful collateral in their hands. Custodians and ETFs might become some of the largest holders of bitcoin in the world, necessitating a continuous and rigorous audit process by anybody interested in the sanctity of bitcoin’s 21 million supply cap.