Why Bitcoin Treasury Companies will be forced to buy ETFs instead of Spot Bitcoin

The revealed-preference endpoint is paper BTC as the corporate standard—observable, steerable, and revocable.

Oct 18, 2025

green ram — Photo by Samuel Toh on Unsplash

TL;DR

The Controllers will shepherd treasuries into supervised wrappers (ETFs/notes/trusts) and away from raw spot Bitcoin. Not by screaming “ban self-custody”, but by tilting every knob — accounting, collateral, tax, custody, ratings, app-store/bank policy — so that the only rational corporate choice is paper exposure.

If I had to guess within the next 2-4 years, ~80% of corporate Bitcoin exposure ends up in wrappers, <20% in direct coins.

I’ve already written a couple of articles on Bitcoin treasury companies if you need more context:

Why wrappers beat spot (from a control lens)

Observability: ETFs create single, regulated choke-points (sponsor, custodian, APs). One subpoena beats 10,000 wallets.
Revocability: ETF units can be halted, frozen, redeemed, haircut, or delisted. Coins in cold wallets can’t.
Narrative cover: “Disclosure clarity”, “investor protection”, “operational risk reduction”. It sounds prudent while achieving control.
Plumbing leverage: Index committees, auditors, ratings agencies, prime brokers, insurers, app stores, banks — none need a new law to steer behavior.

How the Controllers will push treasuries into ETFs (concrete levers)

1) Accounting & audit

Spot BTC: insist on stringent impairment/volatility presentation; require internal controls (multi-sig, key management, SOC 2, disaster recovery) beyond most finance teams’ appetite.
Wrappers: allow clean fair-value treatment with less operational footnote drama; no key management responsibility.
Result: CFOs and Big-4 auditors nudge boards: “ETF exposure = audit-safe; raw coins = career risk”.

2) Collateral & haircuts

Repo/credit policy: approve ETF units as eligible collateral with normal equity haircuts; classify spot Bitcoin as ineligible collateral (“operational/legal risk”).
International Swaps and Derivatives Association/Credit Support Annex schedules: specify “exchange-traded Bitcoin instruments only”.
Result: Treasury teams needing financing or Prime Broker lines prefer ETFs.

3) Capital & ratings

Insurers/pensions: maintain capital charges that make spot positions punitive; treat ETFs like vanilla equity exposure within risk buckets.
Rating agencies: publish methodology notes flagging operational/PR risk of raw BTC on balance sheets; treat wrappers as market risk only.
Result: Boards avoid ratings friction — choose wrappers.

4) Custody rails & banking

Bank policies: allow ETF units as custody assets; refuse or severely restrict spot BTC custody for corporates without bespoke (expensive) arrangements.
Payment processors: ease settlement and reporting for ETFs in treasury portfolios; treat spot as “special handling”.
Result: Operational convenience picks winners.

5) Tax treatment & fees

Fee holidays (sponsors cut ER to vanity levels); tax clarity on ETF flows; ambiguous/onerous withholding/reporting on corporate spot transactions.
Result: After-tax returns look better in wrappers, at least on paper.

6) Index & benchmark plumbing

Index committees: include certain BTC ETFs in major benchmarks (or sector proxies); spot can’t be indexed.
Result: Benchmark huggers buy ETF units to avoid tracking error.

7) Disclosure & PR risk

SEC/ESG optics: encourage boilerplate that classifies spot BTC as “heightened operational, AML/KYC, reputational risk”, while ETF risk reads like “market volatility.”
Result: IR teams prefer the line that won’t ignite headlines.

8) App-store / OS & enterprise IT

Mobile/desktop policies: allow ETF broker apps seamlessly; raise friction on enterprise self-custody wallets (MDM policies, AUPs).
Result: Treasury IT will not fight security teams; they choose wrappers.

The likely path (sequenced)

Carrots first: rock-bottom ETF fees, “clarity” speeches, index adjacency, custody ease.
Soft fences: banks/prime Brokers accept ETF units as collateral; auditors flag spot as “control deficiency risk”.
Quiet disincentives: operational guidance raising the bar for corporate self-custody; insurers rate it “hard to underwrite”.
Hard fences (only if needed): mandate “exchange-traded only” inside ERISA/insurance regs; disallow spot as pledged collateral in common frameworks.
Normalization: sell-side models assume ETF-only corporate exposure; boards stop asking about self-custody.

Odds by end-2027 (corporate balance sheets):

ETF/notes/trusts: ~80% of BTC exposure
Direct spot, true self-custody: ~10–15% (outliers)
On-exchange custodial (not ETF): ~5–10% (shrinking)

Implications

For BTC market structure

Paperization ratio rises → realized volatility declines, upside capped during mania (basis/arbitrage supply), drawdowns managed via policy nudges.
Basis trades deepen; carry strategies thrive; funding markets tied to ETF flows.

For price path

Consent-friendly corridor: cycles persist, but blow-off tops are lower, drawdowns shallower, more frequent “clarity” pops (rule announcements) engineered to look organic.

For corporate adopters

Boards adopt ETF exposure to satisfy “innovation” narrative without operational risk. CFOs get optics and liquidity; controllers get audit comfort.

For sovereign/insider allocators

If any hold raw coins, they won’t telegraph it; public posture will be “we own regulated instruments”. Wrappers preserve policy control.

Where the alpha is

1) Trade the paperization

Accumulate ETF options/carry strategies; sell upside vol into “clarity” headlines; buy fear dips when “crackdown” rumors fly.
Use PR (paperization ratio) as a regime signal: higher PR → more carry, fewer moonshots.

2) Own the compliance consoles

Palantir (admissible decision lineage; government/critical-infra deployments) and Microsoft (Entra/Compliance/Purview + Gov cloud) win regardless of BTC’s wrapper. Corporates and states still need policy-grade data control.

3) Keep a sovereign sliver

Hold Bitcoin in self-custody as tail convexity (Great-Taking-style or capital-control shocks). Do not expect corporate balance-sheet flows to reinforce that thesis.

What would change my view (low probability)

Legal protection for corporate self-custody (explicit safe harbors + standardized audit frameworks + broad insurer acceptance).
Spot as eligible collateral across major Prime Brokers/Credit Support Annexes with normal haircuts.
Index inclusion of spot (impossible) or structural shift where ETFs lose collateral privilege.
Large sovereigns publicly adopting direct spot and enforcing it through bank policy (unlikely—cuts against control).

Bottom line

Incentives > ideals. The Controllers don’t need to ban corporate self-custody; they can price it out via accounting, collateral, custody, and optics. The revealed-preference endpoint is paper Bitcoin as the corporate standard — observable, steerable, and revocable — while true sovereignty remains a small, off-benchmark minority position for those willing to bear operational and political risk.

Other articles I’ve written on Bitcoin & Gold:

Other articles I’ve written on investing: