For the first time in Bitcoin’s history, self-custody rates are falling. The share of Bitcoin supply held directly by individuals in private wallets has dropped to approximately 49%, down from around 78% in late 2022, according to Glassnode data cited by Bitcoin Magazine.

Where did all the self-custody go

Spot Bitcoin ETPs and ETFs now collectively hold approximately 1.3 million BTC, representing about 6.4% of the total circulating supply. Public corporations have joined the party too. Companies collectively hold more than 1 million BTC across various entities, each with holdings of at least 1,000 BTC.

The FTX lesson nobody remembered

In November 2022, FTX collapsed spectacularly, and the crypto world collectively agreed that trusting third parties with your coins was a terrible idea. “Not your keys, not your coins” wasn’t just a slogan. It was a battle cry.

According to Trezor’s analysis, out of approximately 600 million cryptocurrency users globally, only about 10% engage in self-custody practices. The number of people actually using hardware wallets sits at an estimated 12 to 13 million. In a user base of 600 million, that’s roughly 2%.

What this means for investors

If a major ETF custodian experienced a security breach or regulatory seizure, the impact would ripple across millions of investors who thought they owned Bitcoin but actually owned shares in a fund that owned Bitcoin. That’s a very different risk profile than a hardware wallet sitting in your desk drawer.

Investors watching this trend should consider what they’re actually optimizing for. Convenience and regulatory clarity come with custodial solutions. Sovereignty and counterparty risk elimination come with self-custody. The market is clearly voting for the former, but the lessons of 2022 haven’t been invalidated. They’ve just been forgotten.