The rise of Bitcoin stocks and bonds

Author: Lyn Alden, author of Broken Money; Translated by: AIMan@ Jinse Finance

Over the past year or so, the Bitcoin ecosystem has been driven largely by the rise of Bitcoin treasury companies.

While Strategy (MSTR) was the first to adopt this trend in 2020, other companies have been slow to follow suit. However, after another bear and bull market cycle, and a major update to how Bitcoin is accounted for on balance sheets by the Financial Accounting Standards Board (FASB) in 2023, 2024 and 2025 will see a new wave of companies adopting Bitcoin as a treasury asset.

This article explores this trend and analyzes its pros and cons for the entire Bitcoin ecosystem. In addition, this article explores the nature of Bitcoin as a medium of exchange rather than a store of value. In my opinion, this is often misunderstood from an economic perspective.

1. Why are Bitcoin stocks and bonds on the rise?

Back in August 2024, when this trend was still relatively unknown, I wrote an article titled "A New Perspective on Bitcoin Treasury Strategy" that explained the utility of Bitcoin as a corporate treasury asset. At the time, only a few companies were using Bitcoin at scale, but since then, a wave of new and old companies have adopted this strategy. Companies that adopted Bitcoin at scale at the time, such as Strategy and Metaplanet, have seen their prices and market capitalizations rise significantly.

That article explains why public companies should consider implementing this strategy. But what about investors? Why is this strategy so popular with them? From an investor's perspective, why not just buy Bitcoin directly? There are several main reasons.

Reason 1: Authorized Capital

Capital management firms manage trillions of dollars in capital, some of which have strict regulations.

For example, there are some stock funds whose portfolio managers can only buy stocks. He or she can't buy bonds, ETFs, commodities, or anything else. Just stocks. Similarly, there are some bond funds whose portfolio managers can only buy bonds. Of course, there are more specific rules, too, such as some managers can only buy healthcare stocks or non-investment grade bonds.

Some of these fund managers are bullish on Bitcoin. In many cases, they own some Bitcoin themselves. But they can't express that view by putting Bitcoin in a stock fund or a bond fund because that would violate their mandate. However, if someone creates a stock that has Bitcoin on its balance sheet, or issues a convertible bond for a stock that has Bitcoin on its balance sheet, they can buy it. Portfolio managers can now express their bullish view on Bitcoin for themselves and their investors in their own funds. This is a previously untapped market that is gaining traction in the U.S., Japan, the U.K., South Korea, and other countries.

I will use myself as a specific micro-case example of how Bitcoin Treasury can help achieve this goal. Since 2018, I have been running a model portfolio based on real money for my free public newsletter. It allows readers to transparently track my holdings.

In early 2020, I strongly recommended Bitcoin as an investment in my research service and bought some myself. In addition, I wanted to add some Bitcoin exposure to my Newsletter portfolio, but the brokerage firm I used at the time did not offer access to Bitcoin-related securities. I couldn't even buy the Grayscale Bitcoin Trust (GBTC) for my model portfolio at the time because it was traded over the counter and not on a major exchange.

Fortunately, Strategy (then called MicroStrategy) added Bitcoin to its balance sheet in August 2020. MicroStrategy was trading on the Nasdaq at the time and was available to my model portfolio broker. Therefore, given my various constraints on that particular portfolio, I was happy to buy MSTR in the growth sector to express my bullish view on Bitcoin. Since then, my portfolio has held a long position in MSTR, and it has been a wise decision for nearly five years:

Brokers eventually added GBTC as a security to buy, and of course, eventually added the major spot Bitcoin ETFs when they came to market, but I continue to hold MSTR in this portfolio (for the second reason described below).

In short, many funds can only hold stocks or bonds related to Bitcoin due to their authorization regulations, but cannot hold ETFs or similar securities. Bitcoin Treasury gives them the authority to invest in Bitcoin.

This is complementary to Bitcoin rather than primarily competing with it , as Bitcoin is a bearer asset that an individual can keep in their own custody.

Reason 2: The company has an ideal leverage ratio

The basic strategy for public companies to adopt Bitcoin as a treasury asset is to hold some Bitcoin instead of cash equivalents. The first people to come up with this concept tend to have high confidence in the idea. Therefore, the current trend is not only to buy Bitcoin, but also to buy Bitcoin with leverage.

In fact, public companies have better leverage capabilities than hedge funds and most other types of capital . Specifically, they have the ability to issue corporate bonds.

Hedge funds and other pools of capital often use margin loans. They borrow money to buy more assets, but if the value of the assets falls too low relative to the amount borrowed, they risk a margin call. If asset prices fall too quickly, margin calls can force hedge funds to sell assets even if they believe they will rebound to new highs. Liquidating good assets at a low point is a recipe for disaster.

In contrast, companies can issue bonds, usually with maturities of multiple years. If they hold Bitcoin and the price of BTC falls, they don’t have to sell it prematurely. This makes them more resilient to market volatility than entities that rely on margin loans. While there are still some bearish scenarios that could force companies to liquidate, these scenarios require a longer bear market and are therefore less likely to occur.

This longer-term corporate leverage is also typically longer-term than leveraged ETFs. Since leveraged ETFs don’t use long-term debt, their leverage is reset daily, so volatility is generally against them. Fidelity has a great article that breaks down these numbers in detail with examples.

There is a useful chart in this article that shows how a 2x leveraged ETF performs when the underlying asset's return fluctuates between +10% and -10%. Over time, the leveraged product gradually loses value relative to the index it leverages to:

In fact, despite the increase in Bitcoin prices during this period, the 2x leveraged Bitcoin ETF BITU has not really outperformed Bitcoin since its inception. You might think that the 2x leveraged version would perform significantly better than Bitcoin, but it actually just increased volatility without delivering higher returns. The following chart dates back to the early days of BITU:

In the same vein, if you look at the long-term history of more volatile equity sectors, like a 2x leveraged version of the Financials or Energy sectors, you’ll see that they have greatly underperformed during volatile periods:

So unless you are a short term trader, day leverage is pretty bad. Volatility hurts this leverage.

However, tying long-term debt to an asset does not usually lead to the same problems. An asset that is appreciating in value and tethered to multi-year debt is a powerful combination. Bitcoin Treasury is therefore a useful security for those who are firmly bullish on Bitcoin and want to extract returns with reasonably safe leverage.

Not everyone should use leverage, but those who do will naturally want to do so in an optimal manner. Currently, there is a wide variety of Bitcoin treasury companies with varying risk profiles, sizes, industries, jurisdictions, etc. This is a real market need that is being met over time.

Likewise, some of the securities issued by these companies, such as convertible bonds or preferred stocks, can provide exposure to the price of Bitcoin with lower volatility. Some investors may want higher volatility, while others may want lower volatility, and there is a wide variety of securities available to provide investors with the specific type of exposure they need.

2. Is Bitcoin Treasury Company beneficial or harmful to Bitcoin?

Now that we know why they exist and the niche market they fill for investors, the next question is: are Bitcoin Treasury companies beneficial to the Bitcoin network as a whole? Do their very existences undermine the value of Bitcoin as a free currency?

To judge whether Bitcoin Treasury is good or bad for Bitcoin, we must first understand how decentralized currencies could theoretically become popular (if they ever do). What steps would need to be taken, and in what general order?

Therefore, this section will contain two steps. The first step will be an economic analysis of how a new form of money can become popular, that is, what the path to success will look like. The second step will be to analyze whether Bitcoin Treasury will promote or hinder this path.

Step 1: What kind of new currency will be successful and popular?

What would it look like if it were a global, digital, sound, open-source, programmable currency that was monetized from absolute zero?

Ludwig Wittgenstein once asked a friend, “Please tell me why people think it is more natural for the sun to revolve around the earth than for the earth to revolve around itself?” The friend said, “Well, it’s obvious, because it looks like the sun revolves around the earth.” Wittgenstein responded, “Well, if the earth really revolves around itself, what would that look like?”

As Bitcoin’s quadrennial bull run begins, we must brace ourselves for a sudden and unexplained influx of attention from the world. Many newcomers will come with open minds — just as we did — but there will also be many disruptors emerging from behind the scenes, insisting that what we are witnessing is not actually happening because, according to their theories, it simply cannot happen.

Bitcoin cannot be a store of value because it has no intrinsic value. It cannot be a unit of account because it is too volatile. It cannot be a medium of exchange because it is not widely used to price goods and services. These three properties make up the three major properties of money. Therefore, Bitcoin cannot be money. But Bitcoin has no other basis for value, so it is worthless. Proof completed (QED, Quod Erat Demonstrandum).

I call this argument "semantics, therefore true." How could it be falsified? Fundamentally, it is a claim about the material world; about what happens, or in this case, does not happen, in real life. Yet it seems to depend entirely on the meanings of words. In discussing the dollarization of Ecuador—the instructive process by which an "official" currency was spontaneously replaced by a simpler, superior one—Larry White said of those who, by definition, deny that such a thing could happen that they are "staring at the blackboard and not looking at what's going on outside the window." This is a strange way to understand novel phenomena, and one that I would not recommend in general. Reality doesn't care how you describe it.

—Allen Farrington, Wittgenstein’s Money (2020)

Bitcoin was launched in early 2009. Between 2009 and 2010, a few enthusiasts mined, collected, tested, speculated, or looked into whether they could contribute to it or improve it in some way. They liked the idea of ​​Bitcoin.

In 2010, Satoshi Nakamoto himself described on the Bitcoin Talk forum how the network was initially bootstrapped with some tiny initial value:

As a thought experiment, imagine there is a base metal that is as scarce as gold, but has the following properties:
– Uninteresting grey in colour – Not a good conductor of electricity – Not particularly strong, but not malleable or easily forged either – Not suitable for any practical or decorative purpose

There is also a special, magical feature:
Can be transmitted via a communication channel

If it somehow, for whatever reason, acquired any value, then anyone who wanted to transfer wealth over a long distance could buy some, transmit it, and then have the recipient sell it.

—Satoshi Nakamoto, 2010, Re: Bitcoin does not violate the Misesian regression theorem

A year later, in 2011, Xapo founder Wences Casares also used it for this purpose. Here is an excerpt from Masters of Scale Episode 56:

VINCES CASAREZ: We travel the world every year on a bus for a week starting in Buenos Aires. We have a lot of fun. We just get together, drink yerba mate, and run lots and lots of miles.

Reid Hoffman (co-founder of LinkedIn): This is Vince Casares, a serial entrepreneur from Argentina, who is taking us on his annual trip with a group of close friends. I want you to imagine this beloved bus. It looks like a school bus that crashed into an RV and then retired to live in a Mad Max post-apocalyptic world. Before one of their epic trips, Vince learned that the bus was broken. It wasn't hard to fix, but it was expensive. Especially since Vince was living in California at the time and the bus was in Argentina.

Casares: We had to send money to fix the car, but Argentina closed all payment methods, including Western Union, PayPal, etc. You can send money to the central bank, but it is cumbersome and expensive.

Hoffman: It looked like their next trip would have to wait until Argentina's financial system was back on track. But that could take months, even years. Then a friend made a suggestion.

Casares: “Have you researched Bitcoin?”

Hoffman: Bitcoin. It was 2011, just two years after the online currency was launched. Vince was caught off guard.

Casares: I was supposed to be a tech guy, I was supposed to be a finance guy, but I had never heard of this stuff before. I said, "What is that?" He said, "Oh, well, it's a new currency that you can send money to anywhere without a third party." I was very skeptical and even a little cynical.

HOFFMAN: But the bus wasn't going to fix itself. Argentina's financial system wasn't going to fix itself anytime soon. So Vince decided to give Bitcoin a try. And so a mysterious journey began.

Casares: I saw an old man on Craigslist who was willing to sell me $2,000 worth of Bitcoin, and he asked me to meet him at a coffee shop in Palo Alto. We met a guy who looked like Gandalf, and I gave him $2,000 in cash.

HOFFMAN: Wences didn't quite believe what Gandalf did next.

Casares: He had me download an app, scan a QR code, and then he sent me supposedly $2,000 worth of Bitcoin. I went back to the office, convinced I had been scammed. I then sent my friend $200—which was the amount I was supposed to send. At the end of the day, my friend said, “Hey, Vinces, I got the Bitcoins and I sold them for pesos, and that’s it.” I was like, “What just happened?”

Hoffman: Vince's view on Bitcoin has shifted.

Casares: I got stuck in this—for six months—and I was very cynical at first. But after six months, I said, you know, I want to spend the rest of my life helping this succeed because I think a world where Bitcoin works for billions of people is more important than a world where the internet succeeds.

Soon thereafter, Casares convinced many big investors to buy Bitcoin. His Wikipedia page currently describes it as follows:

Casares, widely known as “Patient Zero,” is an entrepreneur who convinced Bill Gates, Reid Hoffman (founder of LinkedIn), Chamath Palihapitiya (founder of Social Capital), Bill Miller (chairman of Legg Mason Capital Management), Mike Novogratz, Pete Brigg (co-CEO of Fortress), and other Silicon Valley and Wall Street tech veterans to invest in Bitcoin, according to Quartz.

I personally know several people active in institutional finance who bought Bitcoin early on, either directly because Casares explained the value of Bitcoin to them or because of speeches he gave on Bitcoin issues.

After some initial success, the challenge for Bitcoin is that the network has spawned millions of competitors. Countless Altcoin have emerged, all of which have similar functions, mainly being able to be bought, transferred, and sold by the recipient. The introduction of stablecoins in 2014 allows these operations to be done using tokens collateralized by the US dollar rather than free-floating units, which helps eliminate volatility.

In fact, the rise of competitors was the biggest reason I didn’t buy Bitcoin in the early 2010s. It’s not that I’m against the concept (quite the opposite), but I think the industry is 1) full of speculative bubbles and 2) easily copied and obliterated. In other words, the supply of Bitcoin may be finite, but the idea is infinite.

But by the late 2010s, I noticed something: Bitcoin’s network effects were succeeding as a portable form of capital. It was breaking through that ceiling. Like a communications protocol (whether it’s a spoken language, a written word, or a digital standard), money as a concept benefits greatly from network effects. The more people use it, the better it is for others to use it, and it’s self-reinforcing. And that’s where the willingness to hold it really matters. And that’s why network effects have to grow and become big to break through this niche and crowded stage.

In this context, we can divide currencies into two categories:

The first category of currencies are “situational currencies,” which are currencies that solve a specific problem but have not yet gained widespread traction in other areas. An asset that can be purchased with local currency, transferred across high friction points (capital controls, payment platform delisting, etc.), and sold/converted to local currency by the recipient is a situational currency. It has value, but success in this area does not necessarily lead to broader success.

The second type of currency is “universal money,” which refers to a currency that is widely accepted within a specific region or industry. Importantly, recipients do not sell or redeem the currency immediately after receiving it; they hold it as a cash balance and may then use it again elsewhere.

For something to be used as universal money, the user must already own it, and the recipient must be willing to hold it. It’s worth noting that people generally want more of something they already have. After all, if potential recipients want to hold it, they’ve probably already bought some. So if a new universal money emerges, most people will probably first view it as an investment, buy some because they think it might appreciate in purchasing power, and then be willing to accept more of it as payment. At that point, they don’t need to be convinced to accept it as payment; they already like the asset, so whether they buy more of it or people just hand it to them as payment is pretty much the same thing.

Bitcoin's simple and secure design (proof of work, fixed supply, limited script complexity, moderate node requirements, and decentralization after the founder disappears) and first-mover advantage (bootstrapping network effects) give it optimal liquidity and robustness, so many people start to want to buy and hold it. Bitcoin's great success so far lies in this: it is a robust and portable means of storing value that users can choose to spend or redeem.

A sound, liquid, fungible, portable store of value that is somewhere between situational money and universal money. Unlike situational money, it is increasingly seen as worth holding for the long term, rather than selling/exchanging immediately after receiving it. But unlike universal money, it is not yet widely accepted in most areas, as the number of people who take the time to analyze it is still a minority. This is a necessary step to connect the two currencies, and I think it is a very long process.

The reason it takes so long to get through this phase is because of volatility, and because of the sheer scale of the existing network effects, people’s spending and debt is measured against that.

If a new monetary network with independent units (i.e. not pegged to an existing currency as a credit rail on top of it, but a completely parallel system to the central bank) is to grow from zero to huge volume, it needs to fluctuate upwards. Any appreciating asset with upward volatility will attract speculators and leverage, which will inevitably lead to a period of downward volatility. In other words, it will look like this:

During its adoption phase, Bitcoin’s value skyrocketed from worthless to trillions of dollars, but it’s a rather flawed form of short-term money. If you receive some Bitcoin and want to use it to pay your rent at the end of the month (and you’re on a very tight budget, i.e. no extra cash), neither you nor your landlord can afford the possibility that Bitcoin drops 20% in a month. The landlord has expenses in the existing fiat currency network effect; she needs to know exactly what the value of the rent she’s receiving from her tenants is. And you, the tenant, need to make sure you can pay your rent at the end of the month without that money being caught off guard by a rapid depreciation in value. The same goes for other living costs.

So in this day and age, Bitcoin is primarily seen as an investment. Hardcore enthusiasts are more likely to want to use it. People facing specific payment issues (capital controls, payment platform delisting, etc.) are also more likely to want to use it, even though they increasingly have similar liquidity options, such as stablecoins. If you mainly use stablecoins like a checking account for a few days, weeks, or months, then the centralized nature of stablecoins is irrelevant.

There are some very well-meaning Bitcoin supporters trying to convince Bitcoin holders to spend more Bitcoin. I don’t see this as a sustainable approach. Bitcoin is not going to catch on as a charity. In order for Bitcoin to become popular enough to be consumed on a sustained, large scale (i.e., not just billions of dollars in equivalent value per year in a medium of exchange globally, but trillions of dollars), it must solve problems for consumers and/or recipients that other solutions haven’t yet solved. That doesn’t have to be the case at this stage of adoption, especially with capital gains taxes on every transaction and options like stablecoins that can meet short-term spending needs as volatility needs to be reduced. The best advice I can give these supporters is that while educating people is good (keep up the work!), it’s important to manage expectations along the way and understand the economic path dependencies involved.

This is where the topic of optionality becomes so important and, in my observation, is so widely misunderstood or underestimated.

Having a reliable, liquid, fungible, portable store of value that is becoming ubiquitous gives holders advantages or options that other assets don’t have. Most importantly, they can take this store of value anywhere in the world without relying on central counterparties and credit. It also allows them to make cross-border payments, including to off-platform payees, without experiencing significant friction even if they stay where they are. They may not be able to pay with it everywhere, but they can find ways to convert it into local currency in most environments if they need to, and in some cases even pay with it directly.

In this sense, Bitcoin has been incredibly successful. To understand why, we first have to understand how shockingly unsaleable most currencies are.

Imagine you are going to a random country. What currency or other portable, liquid, homogeneous bearer asset can you bring with you that will ensure you have enough purchasing power without relying on the global credit chain? In other words, all your credit cards are deactivated, how do you ensure you can still make transactions without some hassle and friction?

The best answer right now is usually physical dollars. If you carry dollars with you, while you may have trouble spending them directly at many types of merchants, it’s easy to find merchants willing to convert dollars into local currency at a reasonable exchange rate and with ample liquidity.

The second, third, and fourth best answers are probably gold coins, silver coins, and Euros. Again, in most countries it is not difficult to find a broker who will accept gold, silver, or Euros and exchange them for a reasonable local price.

After that, it started to fall down the rankings pretty quickly: the Chinese yuan, the Japanese yen, the British pound, and a few others made the top 10. These currencies tend to have more exchange friction. At this point, I think Bitcoin should be in the top 10, somewhere between 5 and 10 , especially if you're going to a city center. Most cities will have plenty of exchange options that you can look for if you need to. That's pretty impressive considering Bitcoin is only 16 years old.

Further down the list is the long tail of 160+ other fiat currencies. I often use the Egyptian Pound and the Norwegian Krone as examples because I go to Egypt every year and Norway every few years and always have some of their notes on me. These currencies do poorly outside their home countries, as do the vast majority of currencies.

Q: If you don’t spend Bitcoin, do you use it as currency?

A: Yes. Money gives you liquidity options. Holding it is using it. Bitcoin is not yet a ubiquitous currency, so it serves the early stages as a hobbyist's currency, situational currency, and/or portable capital.

Q: When will it become a medium of exchange?

A: Unless it gets an order of magnitude larger and less volatile, probably not. Only a small percentage of people understand it and hold it as a store of value. It's a tiny percentage of global assets (about 0.2%). It can go up 100%+ in a year, or down 50%+. And since ubiquitous money is money you're happy to hold once you receive it (rather than quickly sell/redeem like episodic money), mass adoption of a store of value tends to precede mass adoption of a medium of exchange.

The medium of exchange market is very competitive. Stablecoins pegged to existing fiat currencies have the best chance of achieving scale in the next few years. The downside of stablecoins is that they lose value when someone wants to hold them for more than a few months and can be censored/confiscated by the issuer or an institution with influence over the issuer, while no central authority has this power over Bitcoin.

Q: Is Bitcoin too volatile to be suitable as a currency?

A: Yes and no. Volatility is not an inherent property of Bitcoin. If its various properties are unstable and change frequently, they are not inherent properties of Bitcoin. Bitcoin's properties are quite durable and robust. Volatility is something that the rest of the world has given it as it explores and adopts Bitcoin.

Since the network is starting from scratch and stepping into a vast ocean of global capital, it needs upward fluctuations to develop. Sustained upward fluctuations bring excitement and leverage effects, followed by painful pullbacks and deleveraging events. Because of this, it is often viewed as a long-term investment at this stage. Unlike other investments, it also gives investors monetary capabilities through liquidity, portability, and divisibility, that is, it is a currency-type asset.

If it becomes larger and more widely held, it will be less volatile, both up and down.

Q: If Bitcoin is denominated in USD, how can it be its own asset? Isn’t it just a derivative of the USD?

Bitcoin is an asset that can be priced in any currency. It can be priced in any currency, and it can be priced in goods and services. There is nothing in the code itself that is related to the US dollar. It is usually priced in other currencies on foreign exchange exchanges and traded peer-to-peer in other currencies.

The dollar is the most liquid currency in the world today. Smaller, less liquid assets are almost always priced in terms of larger, more liquid assets, not the other way around. People use the larger, more liquid monetary network as their unit of account and denominate most of their liabilities in terms of that network, so that is their reference point.

Long ago, the dollar was defined by a certain amount of gold. Eventually, the dollar network became larger and more ubiquitous than gold, and the situation reversed: gold is now primarily priced in dollars. In the long run, Bitcoin may replace the dollar in this way, but it is far from there. It doesn't matter what Bitcoin is priced in during this process; it is a bearer asset that can be priced in whatever currency is the largest and most liquid, and if it one day becomes the largest and most liquid currency, then other things will naturally be priced in it.

While people are free to price their assets psychologically in whatever currency they want, it is unrealistic to expect most people to price their assets in Bitcoin anytime soon. Critics have no reason to describe this as a flaw in Bitcoin; there is no alternative to a new decentralized monetary asset being priced conventionally in existing currencies while it is still small and growing.

Step 2: How the company integrates

Back in 2014, Pierre Rochard wrote a prescient article called “ The Speculative Attack .”

A speculative attack in the foreign exchange market is when a weak currency is borrowed to buy more of a stronger currency or other high-quality assets. This is one reason why central banks raise interest rates to strengthen their currencies; it helps to discourage too rapid borrowing of their currency relative to other currencies. If this doesn't work well, some countries will turn to outright capital controls to prevent entities from arbitrage using their poorly managed currencies (and these capital controls themselves have an economic cost, because who would want to do business in a country with tight capital controls if there are better options?).

Wikipedia provides a helpful definition:

In economics, a speculative attack occurs when previously inactive speculators quickly sell off untrustworthy assets and correspondingly acquire some valuable assets (currency, gold).

—Wikipedia, July 2025, “Speculative attack”

Well, Rochard described in the article that due to the appreciation properties of Bitcoin, eventually various entities would borrow currency to buy more Bitcoin. At the time, the price of Bitcoin was just over $600 and the market cap was just over $8 billion.

Borrowing money to buy Bitcoin was initially a fringe activity, but today, with a highly liquid network and a market capitalization of over $2 trillion, the Bitcoin network has entered mainstream capital markets on a massive scale, with billions of dollars of corporate bonds outstanding for the specific purpose of buying more Bitcoin.

Now, eleven years later, this situation still occurs from time to time. Is this good or bad for the Bitcoin network?

From what I have seen, there are two main types of critics who believe this is bad for the Bitcoin network.

The first group of critics are part of the Bitcoin users themselves. Many of them belong to the cypherpunks camp, or the self-sovereign camp. To them, handing over Bitcoin to a custodian seems dangerous, or at least goes against the purpose of the network. I’ve seen some of them use the term “suitcoiners” to refer to supporters of Bitcoin treasury companies , which I think is a great term. The entire Bitcoin camp prefers that people hold their own private keys. Some of them go further and say that rehypothecation to a major custodian could depress the price or otherwise undermine Bitcoin’s ability to succeed as free money. While I like the values ​​of this camp (and I mostly belong to it myself), some of them seem to have utopian dreams of everyone being as interested in full control of their own funds as they are.

The second group of critics are usually people who have had a negative view on Bitcoin in the past . They question whether Bitcoin can succeed over the years. As Bitcoin continues to climb to new highs and become the best performing asset after many years and multiple cycles, some of them instead change their views and think that "the Bitcoin price may be rising, but it is already captured." I don't take this camp as seriously as the first camp and mainly see it as a response. This is similar to the eternal bears in the stock market, when their bearish thesis still doesn't work after a decade, they will turn around and say "the market is only going up because the Fed printed too much money." My response is: "Well, yes, this is why you shouldn't be bearish."

What I would point out to both camps is that just because a few large pools of money choose to hold Bitcoin, it does not mean that "free-range" Bitcoin is compromised in any way. It can be self-custodied and transferred peer-to-peer as usual. And, since many other types of entities hold Bitcoin, it makes the network larger and less volatile, thereby also increasing its usefulness as a peer-to-peer currency. It may also provide political cover, helping to normalize the asset relative to policymakers who want to harm it. If Bitcoin reaches this scale, large amounts of money buying Bitcoin is inevitable.

One of the skills of the perpetual bear (regardless of the asset being discussed) is to adjust the narrative when necessary so that no matter what happens, they are correct and the asset fails. For Bitcoin, this means creating a narrative where it has no viable path to success, nor any reasonable definition of success. If it stays at the retail level? Then its price appreciation and ability to have a positive impact on the world is diminished - voila, it is failing! If it is adopted by large entities and governments and continues to grow massively? Then it is captured and lost!

But if it's going to grow, become widely accepted, and change the world in some way, how could that path not eventually go through corporations and governments? I was somehow reminded of the scene in The Notebook where Gosling keeps asking McAdams what she wants. The bull is Gosling, and the eternal bear is McAdams:

Bitcoin has gone through several major eras in terms of who is driving the price higher and who is accumulating the fastest.

In the first era, people mined on their computers, or sent money to Japanese card exchanges (Mt. Gox) to buy them, and other friction-filled early adopter type things. This was the super early user era.

In the second era, especially after the Mt. Gox bankruptcy, Bitcoin became much easier to buy and use. Onshore exchanges made it easier for people in many countries to buy Bitcoin than before. The first hardware wallets became available in 2014, making it safer to keep custody of Bitcoin. This was the era of the retail buyer, and friction still existed but was gradually decreasing.

In the third phase, Bitcoin is large enough, liquid enough, and has a long enough track record to attract more institutional investors. Entities establish institutional-grade custodians for it. Public companies begin to buy Bitcoin, and various ETFs and other financial products emerge, providing investment opportunities for various funds and managed capital pools. Some nation-states, such as the Kingdom of Bhutan, El Salvador, and the United Arab Emirates, mine or purchase Bitcoin and hold it at the sovereign level. Other countries, such as the United States, choose to hold confiscated Bitcoin instead of continuing to sell it back to the market.

Fortunately—and this is important—each era contains the era before it. While corporations currently account for the majority of net purchases, retail investors can still buy at will. It has never been easier to buy Bitcoin and keep it safe. There are now a wealth of resources explaining how to do it, a variety of inexpensive and powerful wallet solutions, and on-chain transaction fees are currently low.

I saw someone say, "I thought Bitcoin was supposed to be for the people, peer-to-peer cash. Now it's all owned by big corporations." Bitcoin is indeed for the people - anyone with an internet connection can buy, hold or send it. The fact that large entities (also run by people) are buying it doesn't negate that.

This is why I identify with the cypherpunks and suitcoiners. I want Bitcoin to be a useful free currency, which is largely why I am a general partner at Ego Death Capital. We fund startups that build solutions for the Bitcoin network and its users. It’s also why I support the Human Rights Foundation and other nonprofits, because they fund developers and educational institutions focused on providing financial tools to people in authoritarian or inflationary environments. However, once Bitcoin is figured out, it makes sense that a lot of capital will buy it, whether it’s corporations, investment funds, or sovereign entities. Bitcoin is large enough and liquid enough that it has now caught their attention.

It’s important to remember that most people aren’t active investors. They don’t buy individual stocks or deeply analyze the differences between Bitcoin and other cryptocurrencies. If they do speculate as a trader, they’ll likely buy in at the highs and get wiped out at the lows. Investments are usually passively allocated to them, not selected by them. In the past, it was usually a pension. Today, it’s usually a 401(k) account that’s automatically matched by an employer and combined with a variety of index funds, or a financial advisor picks investments for them.

In my opinion, it is unrealistic to expect billions of people to flock to Bitcoin on their own initiative. However, it is reasonable to strive to make it possible for anyone to choose to use Bitcoin, which can be achieved through technical solutions and educational resources to lower the barriers and reduce friction as much as possible. Thanks to the efforts of many people, friction has never been lower than it is now.

The best statement I’ve seen is: “Bitcoin is for anyone, but not everyone.” What this means in practice is that everyone should be led to the water on this issue, but only a small percentage of people will choose to drink from it.

3. Risks and opportunities in the Bitcoin Treasury Company era

On the surface, the question of whether Bitcoin Treasury companies are good or bad for Bitcoin is almost irrelevant, as the existence of companies is inevitable for Bitcoin of this scale.

Once this asset grows into a trillion-dollar liquid network, it will be hard to expect it to belong to individuals and not to corporations or governments. As an open and permissionless network, anyone with internet access can buy it. So if Bitcoin can’t succeed without corporations or governments buying it, it will never succeed. It’s like a science fiction alien invasion of Earth that ultimately fails because it can’t tolerate water (Omens) or can’t resist basic bacteria (War of the Worlds). It was never meant to be.

If I didn’t think the technical design and economic incentives of the Bitcoin network were strong enough to support large purchases by institutional investors, I wouldn’t have bought it in the first place. In fact, this is part of the reason why I bought Bitcoin in the first place. I talked about this in my fireside speech at the 2023 Pacific Bitcoin Forum.

When we look past the surface and accept the inevitability of large entities emerging in the blockchain space, there are still many questions worth pondering. What risks will be posed to the network if too many are acquired by enterprises? If so, can these risks be mitigated in some way?

Risk: Concentration and Control

The main risk to consider is that if Bitcoin becomes held by a large amount of capital, it may lose some of its decentralized properties.

While this concern is not negligible, I believe the risk is overstated because the network is highly antifragile, which is why it has been able to remain open and permissionless to this day (16 years now).

Bitcoin is a proof-of-work network, not a proof-of-stake network. In other words, holding a large amount of Bitcoin does not give the holder the power to censor transactions.

Bitcoin miners can censor transactions, but only if the vast majority of miners insist on doing so (i.e., in addition to censoring transactions themselves, most miners only mine on blocks that have previously censored transactions). If they do censor transactions, these censored transactions can offer high fees to entice miners to switch mining pools or jurisdictions in order to uncensor the network and earn these fees. Furthermore, because Bitcoin mining has low profit margins and high competition, miners must go wherever there is a variety of cheap energy, which usually disperses the concentration of jurisdictions to a certain extent. This is a combination of simple but powerful technology and economic incentives.

Entities run nodes, which are software clients that run the Bitcoin network. No one can force users to run a certain type of node software or make updates. It’s not entirely impossible to change the Bitcoin network in a way that benefits a corporation or government at the expense of an individual, but it would be an extremely uphill battle compared to widely distributed software.

Bitcoin has always had a large number of holders. In the early days, it was estimated that Mt. Gox held about 850,000 Bitcoins, when there were about half as many Bitcoins as there are now. It is estimated that Satoshi Nakamoto holds more than a million Bitcoins, which he and others mined. Because these Bitcoins have experienced many booms and busts in the past 16 years, it is widely believed that the private keys to these Bitcoins have been burned or lost at the time.

Nonetheless, it is always best practice to monitor potential risks. Back in 2024, I collaborated with Ren of Electric Capital and Steve Lee of Block Inc (SQ) to write a paper analyzing Bitcoin consensus and its associated risks, and open sourced it as a living document so that it can be updated over time to reflect changing circumstances and other perspectives. You can view it here .

Critics of large institutions and sovereign Bitcoin holders can and should point out any bad behavior that exists. People can and should support or donate to legitimate causes or software development that they are interested in that benefits small users. Like any public good, it relies on millions of individual actors working hard in areas they care about.

Opportunity: Improving the top-of-funnel

With the proliferation of spot ETFs and leveraged Bitcoin treasury companies, the biggest opportunity facing the Bitcoin network may be that it changes the channels through which retail investors can access Bitcoin.

Until recently, most users went to a cryptocurrency exchange to buy Bitcoin, only to be lured into buying Altcoin by casino-style marketing. The vast majority of Altcoin will only experience one big up cycle, after which they will flip and remain stagnant relative to Bitcoin forever, with late-stage retail investors eventually becoming arbitrageurs. Yet, in cycle after cycle, everyone is lured into the marketing of "the next Bitcoin." Read my " Digital Alchemy " article for more on this topic.

Spot Bitcoin ETFs and Bitcoin Treasury companies are more likely to be the first choice for people to get exposure to Bitcoin now than casino-like cryptocurrency exchanges. They will passively invest in Bitcoin through index funds (as some Bitcoin companies are now among the top indexes), they or their advisors may consider investing in spot Bitcoin ETFs, etc. Some of them may decide to further research and consider buying some Bitcoin and taking care of it themselves to make the most of these assets.

Another use for Altcoin historically is when people want to see bigger short-term gains than Bitcoin due to the larger overall size of the Bitcoin network. Bitcoin is already one of the best performing assets of all time, but some people want even more volatility from it.

Leveraged Bitcoin companies offer a more volatile way for those who want to invest in Bitcoin. As I mentioned before, the leverage used by Bitcoin companies is often higher than what individuals and hedge funds can get. Some leveraged Bitcoin treasury companies will operate in a more conservative or more aggressive manner than others. If people really want to speculate and trade, they can even buy options on some of the most liquid Bitcoin treasury companies.

So, the outlook for Altcoin has arguably never been bleaker. Which I think is healthy, given their generally poor track record. Right now, the Altcoin industry seems to be running out of ideas on how to significantly improve their networks. It makes more sense to hold Bitcoin directly, and/or invest or speculate in companies that combine Bitcoin with the best leverage, rather than buying Altcoin .

4. Summary

To summarize this long article, it’s not surprising that the way Bitcoin monetization has developed so far is roughly as follows:

First, Bitcoin was originally a collectible for enthusiasts and/or people with revolutionary dreams. It is a brand new technology that may become valuable or provide some value to people one day in the future, depending on the degree of people's belief.

Second, Bitcoin is starting to become a useful medium of exchange in certain contexts, even for pragmatists who might not have paid attention to it otherwise. Need to send money to a country with capital controls, as Casares did? Bitcoin could succeed where other payment methods fail. Need to receive payments or donations despite being banned from major online payment portals, as WikiLeaks did? Bitcoin could be a good solution. This establishes new uses to some degree.

Third, high volatility, numerous competitors, and frictions such as capital gains taxes prevent Bitcoin from continuing to grow as a general medium of exchange. While Bitcoin’s use cases are still growing, they are still relatively small compared to what some people expect 16 years later. If you use Bitcoin at merchants who don’t hold Bitcoin and they automatically convert Bitcoin to fiat currency, then Bitcoin’s advantages are not fully realized and there is a limit to its usefulness for this use case. There is friction in every currency exchange process, and the network effects are weak for “sell as you receive” assets/networks, which makes the current stage of competition very fierce.

Fourth, Bitcoin is more widely recognized as an ideal portable, accumulating capital. Unlike other cryptocurrencies, it achieves a level of decentralization, security, simplicity, scarcity, and scalability that makes it attractive and worth holding for years. This is where network effects are even more powerful. While it is not always easy to buy coffee with Bitcoin, it has begun to rank among the top ten bearer assets that can be carried abroad and exchanged for local value, surpassing the vast majority of the more than 160 fiat currencies in this regard.

Fifth, the Bitcoin network has reached sufficient liquidity, size, and longevity to attract active attention from companies and governments. Large pools of managed capital are interested in the asset, and companies and funds provide them with indirect access. At the same time, Bitcoin continues to exist as an open and permissionless network, which means that individuals can continue to use it and build on it.

We can then look at two more tiers that could take the lead if the network continues to scale:

Sixth, as the Bitcoin network continues to grow in size, liquidity increases, and volatility decreases, interest in it from large sovereign entities grows. What started out as a small sovereign fund investment could eventually become a currency reserve or a method of large-scale international settlement. Countries continue to try to build closed-source alternative payment methods, but few have adopted or gained acceptance, while this open-source settlement network with a limited supply of its own independent units is gradually growing and developing globally.

Seventh, the larger, more liquid, and less volatile Bitcoin becomes, the more attractive it will be for short-term holding, making it possible for it to become a more common medium of exchange. This is only possible if a large number of people holding Bitcoin have become accustomed to it and its purchasing power is trustworthy in both the short and long term.

Overall, I still believe Bitcoin is in great shape technologically and economically, and its adoption path is expanding as expected.