3.4 Institutional Instruments: Spot ETFs, Custody Solutions and Corporate Treasuries

Institutional adoption has significantly bolstered Bitcoin’s legitimacy, price stability, and mainstream acceptance since the early 2020s. Major financial institutions have launched Bitcoin investment products, enabling easier access for retail and institutional investors. This institutional backing has increased liquidity, reduced volatility, and driven Bitcoin’s market cap beyond $1 trillion, reinforcing its position as a global asset class.

Spot ETFs

Bitcoin spot exchange-traded funds (ETFs) represent a pivotal development in cryptocurrency investing, allowing investors to gain exposure to Bitcoin's price without directly owning the asset. These ETFs hold actual Bitcoin in custody, tracking its spot price in real-time, and trade on traditional stock exchanges like the NYSE or Nasdaq. Launched primarily in the U.S., they bridge the gap between volatile digital assets and regulated financial markets, attracting billions in inflows since their inception. However, their rise has sparked debates over accessibility versus Bitcoin's core principles of decentralization.

History of Bitcoin Spot ETFs

The journey toward Bitcoin spot ETFs has been long and fraught with hurdles, with significant milestones shaping the path toward the landmark approval in 2024. Here’s a detailed timeline of key events in the history of Bitcoin spot ETFs:

2013–2017: Early Proposals and Initial Setbacks

• 2013: The Winklevoss twins (Cameron and Tyler) made the first high-profile attempt at a Bitcoin ETF by submitting their proposal to the U.S. Securities and Exchange Commission (SEC).
  • Rejection: Their application faced repeated rejections, primarily due to concerns over market manipulation and insufficient investor protections. The SEC expressed concerns that the Bitcoin market was too volatile and lacked adequate surveillance mechanisms to prevent fraud.

2018–2023: A String of Rejections and Growing Market Pressure

• 2018–2023: Between 2018 and March 2023, the SEC rejected more than 20 proposals for Bitcoin exchange-traded products (ETPs). The SEC's objections were consistent:
  • Market Manipulation: The SEC raised concerns about the potential for manipulation in the largely unregulated cryptocurrency markets.
  • Fraud Risk: The absence of sufficient safeguards and oversight in Bitcoin trading platforms was also a major issue.
  • These rejections left the cryptocurrency community and financial institutions frustrated, as the spot Bitcoin ETF remained an elusive product despite the growing demand for regulated cryptocurrency exposure.

August 2023: Turning Point – Court Ruling Against the SEC

• U.S. Court of Appeals: In August 2023, a U.S. Court of Appeals ruled that the SEC's rejection of Grayscale’s Bitcoin Trust (GBTC) conversion to a Bitcoin spot ETF was “arbitrary and capricious.”
  • Legal Repercussions: The court's decision forced the SEC to reevaluate its stance on Bitcoin spot ETFs, marking a significant turning point in the regulatory landscape. Grayscale's victory was seen as a crucial victory for advocates of Bitcoin ETFs.

January 2024: Historic Approval – The First U.S. Spot Bitcoin ETFs

• January 10, 2024: In a historic move, the SEC officially approved the first-ever spot Bitcoin ETFs in the U.S. This marked the beginning of a new era for cryptocurrency investments. The approval included major financial players like:
  • BlackRock (iShares Bitcoin Trust, IBIT)
  • Fidelity (Wise Origin Bitcoin Fund, FBTC)
  • Grayscale (Grayscale Bitcoin Trust, GBTC)
• 11 ETFs Approved: A total of 11 spot Bitcoin ETFs were approved in this wave, allowing U.S. investors to directly gain exposure to Bitcoin without having to buy and hold the cryptocurrency themselves. These products were seen as a much-needed validation for the cryptocurrency market.

July 2024: Expansion to Ether – A New Frontier

• Spot Ether ETFs: Following the success of Bitcoin ETFs, the SEC approved spot Ether ETFs in July 2024, extending the same framework to Ethereum. This was a natural progression given the growing interest in Ether, the second-largest cryptocurrency by market capitalization.
  • Investor Demand: The approval of spot Ether ETFs expanded the range of digital assets available to traditional investors, providing easier access to the broader cryptocurrency ecosystem.

2025 and Beyond: The Future of Cryptocurrency ETFs

• Expanding Horizons: By mid-2025, there is potential for additional spot ETFs to be approved for other cryptocurrencies, including Solana, Cardano, and potentially even commodities and other digital assets.
  • Institutional Adoption: The approval of Bitcoin and Ether ETFs has set the stage for further institutional adoption of cryptocurrencies, with more financial institutions, hedge funds, and traditional investors likely to enter the market.

Summary of Key Events

Institutions Involved

The rise of Bitcoin ETFs has become a major milestone in making digital assets more accessible to traditional investors. With financial giants leading the charge, the Bitcoin spot ETF ecosystem has rapidly expanded, offering a bridge between the traditional financial system and the world of cryptocurrencies. Here’s a snapshot showcasing the key players:

1. Market Leader: BlackRock’s iShares Bitcoin Trust (IBIT)

• Assets Under Management (AUM): IBIT quickly became the largest spot Bitcoin ETF. By mid‑2025, it surpassed $80 billion in AUM, becoming the fastest ETF in history to do so within just 374 days.
• Bitcoin Holdings: The ETF holds over 700,000 BTC, accounting for about 56% of total U.S. spot Bitcoin ETF holdings of ~1.25 million BTC.

2. Key Competitors

• Fidelity Wise Origin Bitcoin Fund (FBTC): Holds the second-largest position, with over 200,000 BTC (~$20 billion in AUM).
• Grayscale Bitcoin Trust (GBTC): Has seen significant outflows; its holdings fell from ~619,000 BTC to ~184,000 BTC.
• Other Active ETFs: ARK 21Shares (ARKB), Bitwise (BITB), Franklin Templeton (EZBC), VanEck (HODL) also manage meaningful but smaller portfolios.

3. Custody: Who Holds the Bitcoin

• Coinbase dominates custody for spot Bitcoin ETFs, serving as custodian for approximately 80%+ of issuers.

4. Competitive Fee Structure

• Most ETFs offer low fees, typically around 0.20–0.25%, to attract investors (e.g. IBIT, FBTC).
• GBTC’s higher fees contributed to its outflows.

5. Where You Can Buy

• Widely Available: IBIT, FBTC, ARKB, BITB, and other ETFs are offered through major platforms like Fidelity, Robinhood, Charles Schwab, E*TRADE, TD Ameritrade, Interactive Brokers, and more.
• Robinhood: Lists all 11 spot Bitcoin ETFs for both brokerage and retirement accounts.

Summary Table

Benefits of Bitcoin Spot ETFs

Spot Bitcoin ETFs offer convenience by enabling exposure through standard brokerage accounts, eliminating the need for crypto wallets or direct custody. They provide high liquidity, regulatory oversight, and potential tax efficiencies in retirement accounts, making Bitcoin accessible to a wider audience without storage risks. ETFs may reduce overall market volatility by pooling funds and attracting institutional capital, while low fees (often waived initially) enhance cost-effectiveness compared to futures-based alternatives. Diversification is another perk, as they integrate seamlessly into traditional portfolios.

Risks and Drawbacks

Despite benefits, Bitcoin spot ETFs carry significant risks, primarily Bitcoin's extreme volatility, which can lead to sharp losses. Management fees (0.20-1.50%) and potential tracking errors erode returns, while cyber theft from custodians poses security threats. Regulatory uncertainty lingers, with possible changes affecting liquidity or approvals, and investors lack true ownership, missing out on Bitcoin's direct utility like self-custody. Market concentration in few custodians could amplify systemic risks, and wash sale rules complicate tax strategies.

Controversy: Centralizing a Decentralized Asset

Bitcoin spot ETFs have ignited controversy by potentially centralizing control over a decentralized asset, undermining Bitcoin's ethos of financial sovereignty and self-custody. SEC Chair Gary Gensler called the approval "ironic," noting how ETFs introduce centralization through institutional custodians, contrasting Bitcoin's peer-to-peer roots. Critics, including figures like Michael Saylor, argue that reliance on Wall Street giants like BlackRock could enable market manipulation, regulatory coercion, and a "civil war" in the crypto community between purists and institutional adopters. Proponents counter that ETFs democratize access, but detractors warn of diluted decentralization, where large holders influence prices without holding actual keys.

In summary, Bitcoin spot ETFs have transformed crypto investing by fostering legitimacy and inflows, yet they highlight tensions between mainstream adoption and Bitcoin's foundational ideals. Investors should weigh these factors carefully, consulting financial advisors amid ongoing evolution.

Custody Solutions

Institutional Bitcoin custody refers to specialized services designed for large-scale investors, such as hedge funds, corporations, pension funds, and banks, to securely store and manage Bitcoin holdings. Unlike retail self-custody, where individuals control their own private keys, institutional solutions involve third-party providers that handle key management, compliance, and risk mitigation on behalf of clients. These services have become critical as Bitcoin's adoption surges, with institutions holding over 10% of Bitcoin's supply by 2025, driven by ETF approvals and corporate treasury integrations.

Transparency and regulatory adherence are critical, as concerns about custodial secrecy, highlighted by incidents like the FTX collapse, underscore the need for trusted providers. The SEC’s evolving regulations, such as Interpretive Letter 1184, allow banks to offer crypto custody, further bridging traditional finance and digital assets.

Custody ensures Bitcoin is protected from theft, loss, or regulatory pitfalls while enabling features like staking and lending. Providers typically use a mix of cold storage (offline vaults), multi-party computation (MPC) for key distribution, and hardware security modules (HSMs) to eliminate single points of failure.

As the market matures, selecting compliant providers is key to mitigating risks and capitalizing on opportunities.

Corporate Treasuries

Corporate treasuries, traditionally focused on managing cash flows, liquidity, and risk through assets like bonds and cash equivalents, are increasingly incorporating Bitcoin as a reserve asset. This shift positions Bitcoin not just as a speculative investment but as a strategic tool for hedging against inflation, diversifying portfolios, and enhancing shareholder value. As of 2025, over 160 companies worldwide hold Bitcoin on their balance sheets, with public firms accumulating approximately 690,000 BTC—about 3.3% of the total supply. This adoption has exploded, driven by favorable regulations, reduced reputational risks, and new accounting rules, potentially tilting the Bitcoin market through sustained demand.

History of Adoption

The integration of Bitcoin into corporate treasuries began in August 2020 when MicroStrategy, led by Michael Saylor, purchased 21,454 BTC as a hedge against currency debasement. This move sparked a wave, with Tesla adding $1.5 billion in Bitcoin to its treasury in February 2021, triggering retail interest and contributing to Bitcoin's price surge to $69,000. Adoption slowed amid 2022's market downturn but reaccelerated in 2025, fuelled by pro-crypto policies under the Trump administration and ETF approvals. Public companies added 95,000 BTC in Q1 2025 alone, a 16% increase, with nearly 80 firms now involved—12 joining in the first quarter. Sovereign funds and private entities, like Bhutan's Druk Holding & Investments, have also joined, signalling broader institutional confidence.

Key Examples and Strategies

MicroStrategy remains the largest holder, with 628,946 BTC valued at billions, using it to address economic challenges and boost shareholder returns. Other adopters include Tesla, GameStop, Sequans Communications, and Trump Media, with firms raising nearly $100 billion in 2025 to fund Bitcoin purchases. Biotech companies like Windtree Therapeutics, Nano Labs, and Liminatus Pharma have followed suit, while CEA Industries added 200,000 BNB (a proxy for Binance exposure) worth $160 million. Strategies often involve long-term holding as a "store of value," with some staking for yields or using Bitcoin for payroll and settlements in crypto-friendly regions.

Benefits for Corporate Treasuries

Bitcoin offers several advantages as a treasury asset. It serves as a hedge against inflation and fiscal deficits, given its fixed supply of 21 million coins, outperforming traditional assets over five years with a Sharpe ratio of 2.5. It reduces counterparty risk by providing direct access to censorship-resistant capital, immune to systemic collapses or financial censorship. For companies, it unlocks new funding options, enhances liquidity through staking rewards, and aligns with Web3 ecosystems for operational efficiency. Institutional surveys indicate nearly half of investors expect 10% or more of S&P 500 companies to adopt Bitcoin, viewing it as a long-term growth driver.

Risks and Challenges

Despite the appeal, incorporating Bitcoin carries significant risks. Volatility can lead to sharp balance sheet impacts, with critics like Macro Economist, Henrik Zeberg, warning it plants "bombs" that could detonate during price drops, affecting cash flow and credit. Regulatory uncertainties, audit limitations, and custody risks persist, as seen in cases like Lixte Biotechnology's stock hit after announcing Bitcoin holdings. Accounting complexities under current rules can penalise holdings, though changes expected by late 2025 may alleviate this. Analysts note that while adoption boosts valuations short-term, weaker firms may struggle with volatility, turning it into a "dangerous game of balance sheet roulette."

Regulatory Landscape

The 2025 regulatory environment has become more supportive. The U.S. SEC withdrew its 2019 statement on broker-dealer custody, and the FDIC rescinded 2022 guidance requiring prior notification for crypto activities, easing bank involvement. PwC's Global Crypto Regulation Report highlights how these changes facilitate Bitcoin on balance sheets, integrating it into mainstream finance. The EU's MiCA framework and U.S. GENIUS Act provide clarity on stablecoins and assets, boosting confidence, though scrutiny from bodies like the Financial Action Task Force (FATF) on anti-money laundering (AML) persists. Pro-crypto policies under Treasury Secretary Scott Bessent have further encouraged adoption.

Trends and Future Outlook

In 2025, corporate treasury adoption is surging, with firms holding 1.86 million BTC—a 50.2% increase since late 2024—and predictions that 5% of public companies will integrate Bitcoin within the next year. This could create a supply squeeze, as 75% of Bitcoin is illiquid and exchange reserves hit lows not seen since 2018. Trends include "Bitcoin treasury companies" like Satsuma Technology raising $125 million in BTC and explorations into Ethereum treasuries. Bulls anticipate trillions in corporate cash flowing in, potentially driving Bitcoin to new highs, though sceptics warn of fads and risks. As Matt Hougan of Bitwise notes, this demand could "tilt the Bitcoin market significantly."

In summary, Bitcoin's role in corporate treasuries reflects a maturing asset class, offering innovation amid economic uncertainty, but it demands careful risk management to avoid pitfalls.