An intense debate unfolds at the heart of Bitcoin's intellectual environment as industry veterans disagree on the future of custody, sovereignty, and the role of ETFs in driving mainstream adoption.
The final spark came from investor Fred Krueger, who supported Nick Szabo's appeal for a dual strategy.
ETFs in the crosshairs of Bitcoin's growing self-custody debate
Krueger encourages followers to embrace institutional platforms, such as banks and ETFs, while eagerly protecting the right to self-custody.
“Szabo is right,” wrote Krueger. “The answer is BOTH: welcome adoption by banks, ETFs, and the larger establishment. And at the same time, encourage and practice self-custody. And defend the right to self-custody.”
His stance aims to bridge the growing divide between Bitcoin purists, who value personal sovereignty, and defenders of ETFs, who argue that scale requires traditional infrastructure.
The discussion dates back to November 30, after Bram Kanstein argued that gold is so effective as money that it has been replaced by paper notes created from nothing.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: gold was centralized in vaults and its poor resistance to theft made trust-based alternatives more practical for merchants and banks.
This centralization eventually led to gold being partially replaced by bills and telegraphic money transfers.
Szabo emphasized that Bitcoin solves important weaknesses around speed and verification, but still lags behind on one critical point: theft resistance.
“Bitcoin is, without further ado and most often used, still under 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 duel
That context contributed to a broader ideological split. Bloomberg's Eric Balchunas questioned why “snobbish originals” accept exchanges that hold Bitcoin but oppose ETFs. Balchunas argues that both depend on outsourced custody and that ETFs are “much cheaper and safer.”
Analyst Sam Wouters sharply responded, noting that users can withdraw to self-custody from an exchange at any time, unlike with an ETF.
“Snobbish originals 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 withdraw, although many users do not take advantage of this today. With ETFs, he warned, that opportunity disappears.
But Balchunas maintained that ETFs accelerate adoption, spread ownership across millions, and help Bitcoin mature into a less volatile asset.
Yet some push back, saying that the originals do not accept that coins are locked up under the control of companies just because it increases the numbers. They also argue that ETFs risk giving institutions perceived influence over Bitcoin's protocol direction.
As the debate escalated, Balchunas claimed that self-custody is “a hassle” and “very expensive” when purchased through exchanges. However, the left argues 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 perception that companies can always be pressured.
“All I know is that I got a ledger thing, and then the app went out to find BTC, and there was at least 1.4% to convert my $. Some were 2-3%. For an ETF person, that's really expensive, worse than in the 1970s,” he remarked.
Still, some believe that Bitcoin exists because investors cannot trust companies on their word.
With Bitcoin's identity continually being tested between sovereignty and scalability, the debate over ETF–self-custody has evolved into more than a disagreement. It is now a defining line for the asset's next chapter.
