Why Bitcoin's Institutionalization Is 'A Concern'

Bitcoin's BTC/USD transition from a decentralized digital asset to one dominated by institutional players has introduced a new set of risks.

What Happened: With Bitcoin exchange-traded funds (ETFs) in the U.S. now holding over 1 million tokens—equivalent to 5% of its total supply—the cryptocurrency is increasingly controlled by financial institutions and even governments, reshaping its original decentralized ethos, Bloomberg reported.

The establishment's growing control over Bitcoin is evident in the push for a U.S. government Bitcoin reserve.

A proposal by Wyoming Senator Cynthia Lummis suggests selling Federal Reserve gold to purchase 1 million bitcoin, potentially doubling the government's existing holdings acquired through asset seizures.

While President-elect Donald Trump has not yet endorsed the bill, his pro-crypto stance has heightened expectations for such a move.

Mark Connors, founder of Risk Dimensions, warns of potential consequences saying, "Will this be a risk of being concentrated by existing G-10, G-20 countries or institutions like BlackRock? This is a concern, especially for the purists."

Bitcoin's appeal to governments and corporations is driving its price to new heights, currently nearing $100,000.

ETFs, which have significantly reduced the barriers to entry for institutional investors, are playing a key role in this rally.

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Why It Matters: However, the risks of concentrated ownership loom large.

Unlike early adopters, many ETF investors are unlikely to hold bitcoin through volatile market conditions, potentially exacerbating price swings during downturns.

Michael Terpin, a longtime crypto investor, distinguishes ownership from control. "Governments own a large portion of the world's gold, but they don't have control over its price or utility.

The same will eventually be the case with Bitcoin," he said. Still, this concentration raises questions about Bitcoin's future as a decentralized asset, especially if governments or institutions become its largest stakeholders.

The limited supply of bitcoin further amplifies these risks. According to Glassnode, 65% of Bitcoin in circulation hasn't moved in over a year, reflecting holders' reluctance to sell.

Additionally, the annual issuance of new bitcoin—about 164,250 tokens—is far below projected demand from ETFs, institutional investors and potential government buyers.

Edward Chin of Parataxis Capital highlights this imbalance: "There just won't be enough BTC to satisfy demand unless price moves up meaningfully higher to compel existing holders to sell."

The establishment's growing influence over Bitcoin could also affect other assets, particularly gold. Lummis's proposal to sell significant gold reserves to fund Bitcoin purchases could depress gold prices while driving Bitcoin's value higher.

Analysts predict Bitcoin could reach $500,000 or even $1 million if it becomes part of the global monetary base, akin to gold.

However, such scenarios also make the market more vulnerable to political shifts or changes in government policy, as Noelle Acheson, author of Crypto Is Macro Now, notes: "The market would become more vulnerable to a change of administration, or even a change of mind from the current one, leading to a flood of selling pressure."

For now, Bitcoin's price continues to rise, fueled by institutional interest and speculative demand.

Yet as its ownership becomes increasingly concentrated, Bitcoin faces a new era—one where the risks of establishment control might outweigh its original promise of decentralization.

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