TLDR
- Over $3 billion in Bitcoin has moved from whales into BlackRock’s ETF IBIT.
- New SEC rule enables in-kind Bitcoin ETF redemptions without tax events.
- ETF tax structure now shields long-term holders from capital gains taxes.
- Bitcoin self-custody sees first major decline in over 15 years.
Wealthy Bitcoin holders are moving billions of dollars into regulated spot Bitcoin ETFs, abandoning the long-standing practice of self-custody. BlackRock’s iShares Bitcoin Trust is leading this shift, powered by new SEC rules and tax incentives. The move is seen by many as a step away from Bitcoin’s original ethos of decentralization and individual control, often summed up by the phrase “not your keys, not your coins.”
Bitcoin Whales Shift Away from Self-Custody
Large Bitcoin holders are increasingly opting to transfer their assets into regulated exchange-traded funds. According to Martin Hiesboeck, Head of Blockchain and Crypto Research at Uphold, this marks the first major decline in self-custodied Bitcoin in over 15 years.
Hiesboeck noted on social media platform X that this change reflects a shift in mindset. Investors who once supported decentralized, self-managed crypto storage are now moving toward traditional financial products. He described it as “another nail in the coffin of the original crypto spirit.”
Tax Efficiency Driving ETF Adoption
A major reason for this move is the improved tax treatment available through spot Bitcoin ETFs. A recent U.S. Securities and Exchange Commission (SEC) rule change allows for “in-kind” creation and redemption of ETF shares. This lets authorized participants exchange Bitcoin directly for ETF shares without a taxable sale.
Traditional ETFs use a “cash” system, where redemptions require the sale of assets. This process creates capital gains that are passed on to shareholders. The in-kind method avoids these sales, helping long-term investors limit tax exposure.
According to Hiesboeck, this structure makes ETFs more appealing for those who want to avoid triggering capital gains. “The in-kind mechanism makes the ETF structure more tax-efficient for long-term holders,” he said.
BlackRock’s IBIT Leading the Movement
BlackRock’s iShares Bitcoin Trust (IBIT) is at the center of this trend. The fund has already seen over $3 billion in Bitcoin moved into it from large individual holders, often referred to as “whales.” Robbie Mitchnick, BlackRock’s Head of Digital Assets, shared this data during an interview with Bloomberg.
Mitchnick said many early Bitcoin adopters are now comfortable managing their holdings through regulated products. These investors are choosing to work with financial advisors and access services offered by traditional institutions.
He explained that investors are not abandoning Bitcoin itself but are choosing a format that fits more easily into existing financial systems.
The Role of Financial Advisors and Institutional Integration
The shift toward ETFs is also influenced by broader institutional acceptance and integration. Investors can now manage Bitcoin exposure alongside traditional portfolios, using financial advisors and standard brokerage platforms.
This makes Bitcoin more accessible for wealth management purposes, as investors no longer need to handle complex private key storage or manage wallets themselves. The added safety and convenience appeal to large holders looking to streamline their financial strategies.
Platforms like IBIT also open the door for access to lending and other financial services that are harder to manage with self-custodied assets.
A New Era for Bitcoin Custody
This trend reflects a broader change in how Bitcoin is being used and stored. While the asset was once seen as a tool for financial independence and decentralization, it is now being pulled into the traditional financial system.
As ETFs grow and gain more regulatory clarity, the appeal of self-custody may continue to fade for large investors. The original message of complete financial control is now being challenged by the benefits of convenience, tax efficiency, and professional management.
The movement of whales into ETFs may not mark the end of self-custody, but it clearly marks a shift away from its dominance.
