An intense debate is underway in Bitcoin's intellectual core as industry veterans clash over the future of custody, sovereignty, and the role of ETFs in driving broader adoption.
The latest spark came from investor Fred Krueger, who supported Nick Szabo's proposal for a dual strategy.
ETFs are entering the crossfire in Bitcoin's growing self-custody debate
Krueger urges his followers to use institutional channels, such as banks and ETFs, while protecting the right to self-custody.
“Szabo is right,” wrote Krueger. “The answer is BOTH: welcome adoption by banks, ETFs, and larger establishments. And at the same time, encourage and practice self-custody. And defend the right to self-custody.”
His stance aims to bridge the gap between Bitcoin purists, who value personal sovereignty, and ETF defenders who argue that scale requires traditional infrastructure.
The discussion goes back to November 30, after Bram Kanstein argued that gold is so effective as money that it has been replaced by paper notes created from nothing.
Szabo responded with a historical explanation: the centralization of gold in vaults and its poor resistance to theft made trust-based alternatives more practical for merchants and banks.
This centralization ultimately led to gold being partially replaced by bills of exchange and telegraphic transfers.
Szabo emphasized that Bitcoin addresses important weaknesses regarding speed and verification, but still falls short in a critical dimension: theft resistance.
“Bitcoin is, without further work and as it is typically used, still under the best trust-based practices in theft resistance,” wrote Szabo.
This contributes to Wall Street's preference for third-party custody.
ETFs vs. Self-Custody: A Philosophical Conflict
This context created a larger ideological divide. Bloomberg's Eric Balchunas questioned why “snobby OGs” accept exchanges that hold Bitcoin but oppose ETFs. Balchunas argues that both rely on outsourced custody and that ETFs are “much cheaper and safer.”
Analyst Sam Wouters sharply responded, pointing out that users can withdraw to self-custody from an exchange at any time, unlike 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 ability to leave, even though many users do not utilize it today. With ETFs, he warned, that opportunity disappears.
However, Balchunas argues that ETFs accelerate adoption, spread ownership across millions, and help Bitcoin mature into a less volatile asset.
Despite this, some argue that OGs do not accept coins being locked by companies just because it increases numbers. They also argue that ETFs risk giving institutions perceived influence over Bitcoin's protocol direction.
As the debate intensified, Balchunas claimed that self-custody is “cumbersome” and “very costly” when purchased through exchanges. However, left-leaning supporters point out that many platforms offer free withdrawals, low spreads, and no annual fees, unlike ETFs.
Balchunas insisted that ETF issuers “do not want protocol power,” despite the general feeling that companies can always be subjected to pressure.
“All I know is that I got a ledger thing, then the app went out to fetch 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.
Despite this, some hold that Bitcoin exists because investors cannot trust companies on their word.
With Bitcoin's identity constantly tested between sovereignty and scalability, the ETF–self-custody debate has become more than a disagreement. It is now a defining breaking point for the asset's next chapter.
