Recent warnings from the FBI about North Korean hackers targeting firms related to crypto ETFs raise serious concerns about the security of these assets.
Dangers for Crypto ETFs
North Korean hacker groups such as Lazarus Group have already committed numerous attacks on major cryptocurrency exchanges and blockchain protocols. They could now target crypto ETFs by attacking their underlying assets. Despite substantial investments in these funds, most assets remain uninsured, potentially leading to catastrophic consequences in the event of a successful hack.
Crypto ETF Insurance Risks
Jameson Lopp, co-founder and Chief Security Officer of crypto self-custody wallet Casa, noted that many investors might not understand all the risks associated with ETFs, ignoring the fact that their assets are virtually uninsured: "Insurance coverage by third parties is a joke. Recovering lost funds is practically impossible." Notably, the insurance policy for BlackRock’s iShares Bitcoin Trust ETF covers only 0.12% of its total digital assets.
Centralization of Crypto Custody in the US
The significant centralization of the crypto custody sector in the US is worrisome. As the sole custodian of almost all crypto ETFs in the US, Coinbase held 808,619 BTC as of early September. This creates considerable systemic risk if this primary custodian is compromised.
While North Korean hackers pose a real threat to crypto ETFs, the importance of robust security systems and the need for diversification among crypto custodians are becoming increasingly evident. Investor confidence in these products may hinge on the market's ability to respond to new security challenges.
Comments