This isn’t a problem with cash - why is it a problem with bitcoin?

I think this is a perception problem. BTC isn’t an online credit card, it’s online cash. With everything that implies.

It's not a "problem with bitcoin" per se, it just means that bitcoin will have to be supported by banks in the same way that cash is - your assets are kept in an account that the bank is responsible for and you only hold a small amount of cash at a time - for it to be useful to people.

There are institutions that do that with multisignature addresses. Thats been around for probably longer than you knew about bitcoin, so there goes your rebuttal.

It's not a technical problem, it's an institutional problem - really multisig is probably worse than just having the bank hold the keys, as it makes it possible for users to lose their money by doing something stupid with their key.

2 of 3 multisig would work with the user having two keys, and one key being authorized by 2 factor authentication. When the user loses their non 2 factor key, they just have the 2 factor one and the institution. The institution can authorize the transaction to move their money to a new address with new keys.

What I'm saying is that the user probably shouldn't have any keys at all, because they will end up losing their money to a phishing scam or something.