A fierce debate is unfolding at the heart of Bitcoin’s intellectual core as industry veterans clash over the future of custody, sovereignty, and the role of ETFs in driving mainstream adoption.
The latest spark came from investor Fred Krueger, who endorsed Nick Szabo’s call for a dual strategy.
ETFs Enter the Crossfire in Bitcoin’s Growing Self-Custody Debate
Krueger urges followers to adopt institutional rails, such as banks and ETFs, while fiercely protecting the right to self-custody.
“Szabo is right,” Krueger wrote. “The answer is BOTH: welcome adoption by Banks, ETFs, and the greater establishment. And at the same time, encourage and practice self-custody. And defend the right to self-custody.”
His stance aims to bridge the widening divide between Bitcoin purists, who prize personal sovereignty, and ETF defenders, who argue that scale requires traditional infrastructure.
The discussion dates back to November 30, after Bram Kanstein argued that gold is so effective at serving as money that it has been replaced by paper notes created from nothing.
Szabo responded with a historical explanation: gold’s centralization in vaults and its poor resistance to theft made trust-based alternatives more practical for merchants and banks.
That centralization eventually led to gold being partially replaced by bills of exchange and telegraphic wire transfers.
Szabo stressed that Bitcoin solves key weaknesses around speed and verification, but still lags in one critical dimension: theft resistance.
“Bitcoin is, without further work and as most commonly used, still below the best trust-based methods in its theft resistance,” wrote Szabo.
This contributes to Wall Street’s preference for third-party custody.
ETFs vs. Self-Custody: A Philosophical Standoff
That context fueled a wider ideological rift. Bloomberg’s Eric Balchunas questioned why “snobby OGs” accept exchanges holding Bitcoin but oppose ETFs. Balchunas argues that both rely on outsourced custody and that ETFs are “waaay cheaper and safer.”
Analyst Sam Wouters countered sharply, noting that users can withdraw to self-custody from an exchange at any time, unlike with an ETF.
“Snobby OGs love bitcoin as money that creates freedom. An ETF is a bird in a cage,” he wrote.
He argued that the value of self-custody lies in the option to exit, even if many users do not exercise it today. With ETFs, he warned, that option disappears.
However, Balchunas maintained that ETFs accelerate adoption, spread ownership across millions, and help Bitcoin mature into a less volatile asset.
Still, some push back that OGs do not accept coins being locked up under the control of corporations just because it increases the number. They also argue that ETFs risk giving institutions perceived influence over Bitcoin’s protocol direction.
As the debate escalated, Balchunas claimed self-custody is “a pain” and “very expensive” when bought through exchanges. However, left-wingers hold that many platforms offer free withdrawals, low spreads, and no annual fees, unlike ETFs.
Balchunas insisted ETF issuers “don’t want power of protocol,” despite general sentiment that corporations can always be pressured.
“All I know is I got a ledger thing, then the app went out to source BTC, and it was 1.4% minimum to convert my $. Some were 2-3%. For an ETF person, that’s really expensive, worse than the 1970s,” he noted.
Still some hold that Bitcoin exists because investors cannot trust corporations on their word.
With Bitcoin’s identity continually being tested between sovereignty and scalability, the ETF–self-custody debate has transcended into more than a disagreement. It is now a defining fault line for the asset’s next chapter.
