Hackers reportedly drained around $89 million from Coldcard hardware wallets by exploiting a firmware flaw, and Bloomberg senior ETF analyst Eric Balchunas says the breach makes a clear case for regulated spot Bitcoin ETFs over self-custody. The flaw traces to a 2021 design choice by Coinkite Inc., a company with only around five employees whose small size Balchunas called a red flag.
Hackers reportedly drained around $89 million from Coldcard hardware wallets after exploiting a firmware flaw in the devices. According to Balchunas, the breach provides a clear argument in favor of regulated spot Bitcoin ETFs and could significantly undermine the case for holding crypto on personal devices. The failure has already triggered a broader debate about the reliability of self-custody in crypto.
Firmware flaw traced to 2021
The technical cause was a firmware flaw in Coldcard hardware wallets made by Coinkite Inc., a Canadian company. The flaw had existed since 2021. Instead of generating private keys inside an isolated hardware chip, the devices used a predictable software algorithm, letting hackers calculate the keys offline and launch an automated withdrawal of funds.
Balchunas also pointed to the modest size of the manufacturer: according to PitchBook and LinkedIn data, Coinkite has a staff of only around five people — a count that appears disproportionate to the amount of capital its products are expected to protect.
According to Balchunas: "That seems crazy low for such an important job." From his perspective, infrastructure from larger custodians such as Coinbase or Ledger appears more logical for protecting large amounts of capital, since their higher fees can be justified by stronger security controls.
ETFs remove the self-custody risk, in theory
Balchunas points to spot Bitcoin ETFs, where custody protection comes from regulated institutional entities. In theory, this removes the risk of software-related technical failures for investors.
Yet ETFs carry real limits: investors cannot withdraw coins around the clock or use Bitcoin directly as a payment method, which still makes the funds unsuitable for everyday transactions.
For long-term investors seeking only price exposure to Bitcoin, Balchunas argues that exchange-traded ETFs could become the preferred option following the Coldcard collapse, since investors may be unwilling to take risks in what he calls a largely makeshift market for Bitcoin self-custody solutions.
Source: U.Today
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