Bitcoin: The Importance Of Self-Custody – Seeking Alpha

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Bitcoin (BTC-USD) elicits quite the response from readers. Very few things in the investment world generate the same level of polarization as Bitcoin and cryptocurrencies do. Elon Musk, Tesla (TSLA) and by extension Cathie Wood’s Ark Innovation Fund (ARKK) are probably the closest thing to crypto from a polarization standpoint in the finance world, in my view.
Bitcoin perma-bulls, often resembling religious zealots, will say it’s a perfect money that is going to free the world from fiat enslavement. Perma-bears say it’s a Ponzi scheme that is always reliant on new money entering the con to keep the scam going. I recognize I’m probably in the minority with this hot take, but like Cathie Wood, Elon Musk, and Tesla; for Bitcoin, the reality is probably somewhere in the middle of all of the noise.
While I’ve made it no mystery that I’m bullish Bitcoin long term as a speculative play, my main criticism of Bitcoin has always been that network fees have made it cost prohibitive to truly be a medium of exchange for everyday transactions. This would be problematic because peer-to-peer payment is precisely the point. The phrase “peer-to-peer” is in the title of the white paper. This serious concern I’ve had with the cost to move Bitcoin on the network for smaller value transactions is what has led me to look at various other cryptocurrencies for the true peer to peer payment angle. You can read coverage of some of those cryptocurrencies here, here, and here.
BTC avg Transaction Fee (
At a little over a dollar, the average network fee to move Bitcoin on chain is as cheap as it has been in years. While it has been great seeing the average network fee to transact come down substantially, the fundamental argument for a decentralized money might be a bigger deal.
My commentary on this isn’t on the truckers, the protestors, or the movement itself; it is on the idea that governments can strongarm the banking sectors that they regulate into weaponizing financial services. What Trudeau is trying to do in Canada is a very big deal. And while I’m not going to try to pat myself on the back for highlighting something that was so patently obvious to many, with respect to, Coinbase (COIN), and FTX, Trudeau’s actions in Canada have advertised decentralized monetary instruments to the masses better than any exchange or broker possibly could.
After pressuring GoFundMe to not disperse the roughly $10 million that was raised for the trucker protest, the popular crowdfunding platform obliged the Canadian government and wouldn’t send the protestors the donations that were collected. GiveSendGo, a competing crowdfunding platform, stepped up since and has raised almost $10 million as well. But that $10 million raised has come with a price. The GiveSendGo platform was hacked and sensitive donor information was leaked online. While GiveSendGo claimed it would not comply with Canadian mandates, Trudeau took matters into his own hands by ordering the bank accounts of anyone associated with the protests to be frozen.
With the Canadian government choking off financial services for political opponents, Bitcoin quickly became a method for trucker convoy donations with almost 21 Bitcoin (valued currently at about $800,000) getting donated to the protestors. In the response to the cryptocurrency funds raised, the Canadian government has doubled down. Deputy PM Chrystia Freeland:
The names of both individuals and entities as well as crypto wallets have been shared by the RCMP with financial institutions and accounts have been frozen and more accounts will be frozen.
There’s an old adage in the precious metals space that goes like this; if you can’t hold it, you don’t own it. This statement usually comes from proponents of physical metal holding rather than storing gold and silver with custodians. This is a really strong analog for cryptocurrencies and the exchanges that provide them. While there’s a joke here somewhere given cryptocurrencies don’t actually exist physically, the physical nature of cryptocurrency manifests in the seed phrase rather than in the coin itself – which is just code. I’ll get into the seed phrase in a moment.
Another good analog though for exchange held crypto versus self held crypto is paper cash. Many people don’t bother holding physical cash anymore because the financial system has become so reliant on electronic rails. It’s easier to swipe or tap plastic than fumble with paper notes. But what many Canadians are now realizing is holding a reasonable amount of physical cash allows them to continue to buy food and basic necessities even after the government has frozen their bank deposits.
Cryptocurrency exchanges are no different and they are almost certainly going to comply with federal mandates. Kraken’s CEO Jesse Powell has overtly said as much online. When asked by a Twitter (TWTR) user if the accounts of Kraken users could be frozen, this was his response:
100% yes it has/will happen and 100% yes, we will be forced to comply. If you’re worried about it, don’t keep your funds with any centralized/regulated custodian. We cannot protect you. Get your coins/cash out and only trade p2p.
By “p2p,” Powell is saying peer-to-peer. He’s saying to pull funds from his service and use them the way they were intended if you’re worried about financial weaponization. To pull funds from an exchange to a self-custodial wallet, users will need to save their seed phrase in a very safe place.
After you download a mobile or desktop wallet to self store your Bitcoin, you will be given the choice to import a seed phrase that you already have or you will be provided a new seed phrase and a new wallet address will be created. The seed phrase is usually a string of 12 or 24 words that serve as your key to unlocking your crypto if something happens to the device that you’re running the software on. As an example, this is the seed phrase to a new wallet address that I created this morning through the Zap platform. I’ve blacked out some of the words so that you can’t steal access to the wallet.
Seed Phrase Example (Author’s Zap Wallet)
Now if something ever happens to the laptop that I’m using to run this wallet, as long as I saved the seed phrase that I was provided at address setup, I can import that phrase in any crypto wallet software on any other device and I’ll have secured access to my funds once again. Because of this, it is critical that you save your seed phrase by writing it down and storing somewhere safe. You should never share it with anyone.
The seed phrase is a bit like a ticket to a football game. The ticket gets you access to one very specific seat in the stadium. But as long as you have your ticket, you can use any door to get into the venue. In this analog, the venue is the Bitcoin blockchain. Your seat is the Bitcoin you own. The ticket is your seed phrase. The doors to the stadium are the non-custodial wallets. The wallets are just doors to the blockchain, which one you use is up to your personal preference. Securing the seed phrase is what matters the most.
As a proponent of cryptocurrencies for several years, I’ve gone out of my way to try numerous different wallet options for self-storage. And while the hardware wallets provided by companies like Trezor or Ledger are probably the safest ways to self-store crypto, I do like the convenience of being able to quickly move self-stored crypto without having to get out a laptop and a dongle. From a mobile wallet perspective, these are my four favorite wallet software options: Edge, Unstoppable, Exodus, and Atomic.
Each of these wallet solutions support dozens of different cryptocurrency options. If I could only pick one, it would be Unstoppable because of the markets tab that also provides a market overview, news, and watchlists. Furthermore, Unstoppable also supports the totally private Z addresses on the Zcash (ZEC-USD) blockchain. I know Zcash has its haters, but if you are interested into why it’s one of my Top 3 coins by holding weight, read this. I predicted a lot of what is happening in Canada several months ago.
When it boils down to it, where you store your Bitcoin depends entirely on what you think the purpose of Bitcoin is. If it’s purely a speculative asset and you simply want to minimize tax obligations on potential gains, then (OTC:GBTC) in a Roth is a great strategy. However, if Bitcoin is monetary freedom to you and you’re not holding any through a self-custodial wallet yet, I hope this article and what is happening in Canada will push you to take back control of your wealth. This is a big moment for Bitcoin. Through all of the noise, cryptocurrencies have a chance to actually start serving the purpose they were intended for. It is my sincere hope they succeed. The Gold vs Bitcoin debate was always silly to me. Own both, store both yourself, and eliminate third party risk.
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Disclosure: I/we have a beneficial long position in the shares of BTC-USD, ZEC-USD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I’m not an investment professional. I share what I do and why I do it.