Regulatory Authorities Pushing for Bitcoin Custody in Bankrupt Banks: A Risky Move

According to reports, Gabor Gurbacs, Director of Digital Asset Strategy at VanEck, an investment management company in New York, stated on social media that regulatory agencies are pushing for the custody of valuable fully provisioned bearer assets (such as Bitcoin) in partially provisioned banks (many of which are now bankrupt), which is highly ironic. Always question the statements of regulatory authorities and consider the views of long-term practitioners/asset owners.

Gabor Gurbacs: Auxiliary storage will become standard within 5-7 years

As Bitcoin continues to gain traction and attract increasing numbers of investors and traders, regulatory authorities are stepping up their efforts to regulate the asset. One way they have been doing this is by pushing for the custody of valuable fully provisioned bearer assets, such as Bitcoin, in partially provisioned banks that are often on the brink of bankruptcy. This move has raised concerns among long-term practitioners/asset owners and has sparked debates about the risks it poses to the security and stability of Bitcoin holdings.

The Irony of the Situation

According to reports, Gabor Gurbacs, the Director of Digital Asset Strategy at VanEck, an investment management company in New York, has expressed his concerns on social media regarding the push of regulatory agencies for the custody of Bitcoin in partially provisioned banks. He noted that it is ironic that regulators are advocating for holding valuable assets in banks that are at risk of bankruptcy, something that poses a significant threat to the security and value of the asset.
The irony stems from the fact that Bitcoin was initially created to provide a decentralized, trustless, and secure alternative to traditional banking systems, which are plagued by corruption, centralization, and inefficiencies. By pushing for the custody of Bitcoin in banks, regulators are indirectly reinforcing the very system that the asset was designed to disrupt. They are disregarding the core principle of Bitcoin, which is to provide a decentralized infrastructure that eliminates the need for intermediaries and trusted third parties.

The Risks of Storing Bitcoin in Banks

The move by regulators to push for the custody of Bitcoin in banks raises several concerns, mainly regarding the security, stability, and accessibility of the asset. Here are some of the risks associated with storing Bitcoin in banks:

Bankruptcy Risk

Most partially provisioned banks are often on the brink of bankruptcy, which means they have little to no assets to back their liabilities. If such banks are entrusted to hold Bitcoin, the risk of losing the asset is significantly high. In case the bank goes under, investors may lose their Bitcoin holdings, and recovery may be challenging.

Cybersecurity Risk

Banks are often the targets of cyber-attacks that aim to steal sensitive information, including private keys that control Bitcoin holdings. If Bitcoin is stored in banks, it becomes vulnerable to cyber threats, which increases the risk of losing the asset.

Counterparty Risk

By holding Bitcoin in banks, investors are exposing themselves to counterparty risk, which is the risk of the bank being unable to fulfill its obligations. Since banks are often under-capitalized, the risk of default is high, which means investors may lose their investment or face significant delays in accessing the asset.

Centralization Risk

By holding Bitcoin in banks, regulators are creating a centralized point of failure, which goes against the core principles of Bitcoin. The more centralized an infrastructure is, the higher the risk of corruption, manipulation, and inefficiencies.

Questioning Regulatory Authority Statements

The move by the regulatory authorities to push for the custody of Bitcoin in banks highlights the need for investors and traders to question their statements critically. As Gabor Gurbacs noted, long-term practitioners and asset owners have a better understanding of the risks and opportunities associated with Bitcoin, and their views should be considered when making decisions about the asset.
In conclusion, the push by regulatory authorities to store Bitcoin in banks that are often on the brink of bankruptcy raises significant concerns about the security, stability, and accessibility of the asset. The move goes against the core principles of Bitcoin, and investors should critically analyze the risks before entrusting banks with their Bitcoin holdings.

FAQs

Q1. Should I store my Bitcoin in banks?

A1. It is not advisable to store your Bitcoin in banks, especially those that are partially provisioned or on the brink of bankruptcy. Doing so poses significant risks to the security and stability of the asset.

Q2. What are the alternatives to storing Bitcoin in banks?

A2. The best alternative to storing Bitcoin in banks is to hold it in a private self-custody wallet that provides you with full control over your private keys.

Q3. What actions can I take to protect my Bitcoin from cyber threats?

A3. You can protect your Bitcoin by exercising caution when accessing your wallet and keeping your private keys secure. You can also use hardware wallets that provide additional layers of security.