In May, 2025, Coinbase (NASDAQ:COIN) announced that it faced a security breach unlike any other. It wasn't a hack. No one had their account details stolen. But the operation led to Coinbase account owners personal details being handed over to cybercriminals who then phoned these people, telling them that the Coinbase "hack" required they move money off chain and into their Coinbase wallet. Somehow, these thieves managed to clone these wallets and those who fell for this trick had their wallets emptied out within days.  

A few months later, a California-based artist named Ed Suman was the subject of an unfortunate Bloomberg article saying he lost over $2 million to the fake Coinbase scammers.  There is nothing Coinbase can do to get it back. The 67-year old Suman's millions are in some cybercriminals bank account somewhere. Reuters estimated around $400 million was stolen from Coinbase customers.

"Recent security incidents have made it clear that investor confidence cannot be rebuilt solely through individual defensive behavior," said Wish Wu, co-founder of the Pharos Network, a Layer-1 blockchain that works as a programmable financial layer across Web2 and Web3 ecosystems. "When users are forced to rely on self-custody expertise and constant vigilance, it signals a deeper infrastructure gap," Wu said from Hong Kong.

It also signals to retail investors that it is better to buy the crypto ETFs than set up an account on a cryptocurrency exchange. 

Cryptocurrency Theft Breaks Records Again

Some $3.4 billion in cryptocurrency holdings were stolen in 2025, according to Chainalysis, beating 2024 theft.  Bybit exchange's roughly 400,000 Ethereum theft made up nearly half of the theft last year. This year will be no different. Crypto wallets and exchanges are subject to cybercriminals and scams. Securities and Exchange Commission regulated asset managers, on the other hand, are able to provide cryptocurrency investors a sleep-at-night security layer.

Data on spot Bitcoin ETFs in 2025 showed net inflows of around $26 billion — indicating a steady and growing investor interest in these regulated, theft-proof vehicles. 

Formerly on the sidelines in the crypto market, Vanguard has now admitted their clients want a digital asset option. Vanguard is not yet building their own crypto funds, but they are allowing funds from other companies, like the 2X Bitcoin Strategy Fund (BATS:BITX) to trade on their platform. 

BlackRock’s iShares Bitcoin Trust (NASDAQ:IBIT) has become one of the fastest-growing ETFs in U.S. history with over 42 million shares traded daily, more than the Invesco QQQ Trust (NASDAQ:QQQ) ETF, one of the biggest Nasdaq trades.

The demand for cryptocurrency exposure is shifting from the trading platforms to mainstream asset managers and all of that has to do with ease of account set up, and safety.

It is much harder to nearly impossible for fund companies to just throw their hands up and say "sorry" to their clients after a theft, as the exchanges and payment players like Bitpay will do. If a regulated crypto ETF trading on the U.S. stock exchange was wiped clean by hackers, they would be sued instantly by investors. Coinbase was also instantly sued.

Crypto ETFs Owe Investors Fiduciary-like Responsibilities

Crypto ETFs have a duty to safeguard investor assets and supervise custodians. Crypto currency exchanges owe their account holders none of these things, putting the onus of safety on the investor. 

CAPTION: Coinbase CEO applauded the arrest of Coinbase contractors who facilitated the security breach in 2025. Arrests are meaningless to investors who lost millions. 

"The 2025 security failures didn't really damage crypto, but it did in fact unmask who was never building it seriously," said Nima Beni, founder of Bitlease, a crypto leasing and financing platform that uses a lease-to-own model for digital asset acquisition. 

"The so-called institutional safety layers have collapsed exactly as expected. Crypto works when responsibility is direct and provable, and it fails when people try to smuggle human trust back into a system designed to eliminate it. What actually broke in 2025 was the illusion that intermediaries make anything safer, not confidence in crypto investing overall," Beni said.

Coinbase says it would never call, email, or text a customer. Nor would it ever advise a customer on how to move investments. Anyone doing this and claiming to be from Coinbase is trying to steal assets. 

A former Coinbase support agent was arrested in India back in December. 

Coinbase publicly said it would reimburse customers who mistakenly sent funds to scammers. They committed up to $180 million to $400 million toward remediation and reimbursements. 

Years after the FTX debacle, some smaller account holders are also being made whole as institutional players and the big exchanges themselves work to protect their companies’ — and the broader Bitcoin and blockchain markets — reputation so as not to be seen by law makers and new investors as a science fiction gambling den full of ne’er-do-wells.

Customers who had accounts valued under $50,000 have mostly all received full distributions — including interest on their original amounts — and in some cases even slightly more than the nominal value of their losses.

As the market matures, crypto exchanges will have to insure protection of their client funds or ultimately risk being taken over by the old Wall Street firms they were created to disrupt, and replace. Investors, especially retail investors, do not want to spend time learning about cold storage and hard wallets.

"What erodes confidence most is not a single loss, but the perception that security failures and theft are inevitable," said Wu.

As real-world assets move on-chain, crypto currency platforms will "be judged by their operational resilience and governance maturity," said Wu. "They will not be judged just by their technological innovation or audit history."

The writer invests in the Grayscale Bitcoin Trust. Artwork by the author.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.

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