Bitcoin is going against its initial ethos and plan to stay away from the traditional financial system. Notably, BlackRock’s iShares Bitcoin Trust (IBIT) has facilitated $5B in in-kind creations or physical BTC swaps for its ETF shares.
The conversions, designed for wealthy investors and initially debuted last summer, have seen rising demand, according to Robbie Mitchnick, head of digital assets at BlackRock.
Commenting on the migration of physical BTC from wealthy private wallets to IBIT, Mitchnick cited two factors,
People see things happen in the outside world — whether it’s kidnappings, ransom, custody failures — that motivate them to make this switch for all or some of their holdings.
On access, the world’s largest asset manager cut the minimum amount for in-kind creations by 96%.
When the feature debuted last year, the minimum requirement was $25M to swap one’s physical BTC to IBIT shares.
Now, BlackRock has slashed this to $1M, marking a 96% drop, further expanding access to those wishing to move their assets into a regulated ETF.
What’s driving investors to BlackRock’s BTC ETF?
Most importantly, recent custody failures such as Coldcard and rising physical attacks targeting crypto investors seem to have played a massive role in the trend.
In fact, top Bitcoin hardware wallets, including Ledger and Trezor, have faced increased scrutiny after an attacker made off with over $100M, or over 1800 BTC coins. As self-custody, a key anchor for BTC supporters, broke, the trust in it was punctured too.
And the flight to alternatives was visible even across on-chain data. A whopping 210K BTC coins, worth over $13B, were moved amongst long-term holder (LTH) wallets after the Coldcard vulnerability fallout.
For most analysts, the movement was a custody migration and not capitulation. And BlackRock’s Mitchnick has confirmed their stance.
Additionally, physical attacks and kidnappings, commonly known as “wrench attacks,” have spiked in France and the U.S. These attacks target crypto investors and have ended in mutilations and deaths.
Although the attacks and overall funds stolen via wrench attacks have declined by about 3x in recent years, the risk remains, especially in France.
To mitigate this, investors seem to be ditching self-custody for third-party custody via ETFs.
In fact, in August alone, BlackRock’s IBIT attracted $200M in weekly average inflows. That’s half of the total of about $500M in weekly net inflows.
But this is just a custody migration and does not directly increase demand for BTC. In any case, it elevates concentration risk.
Final Summary
- Wealthy investors have ditched self-custody for IBIT as in-kind conversions hit $5B.
- BlackRock’s Robbie Mitchnick linked the trend to custody failures and rising violent attacks against crypto investors.
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