Bitcoin Supply Absorption by Major Financial Players

Bitcoin Supply Absorption by Major Financial Players — Implications Explained

Bitcoin was created as a decentralized monetary system, free from central control. However, the ownership structure of Bitcoin is changing significantly. As the issuance of new coins decreases and liquidity becomes limited, an increasing portion of the circulating Bitcoin supply is being acquired by large financial institutions. This trend is altering the dynamics of the Bitcoin market, particularly in terms of liquidity and long-term distribution.

Key Takeaways

The ownership of Bitcoin is increasingly centralizing among large financial institutions.
Institutional demand aims to use Bitcoin for managing future capital outflows, despite lacking governance influence.
Current price challenges may present opportunities for accumulation.
The Venezuelan crisis exemplifies the potential of Bitcoin during times of economic turmoil.
Lessons from historical events highlight the need for preparedness in monetary strategy, particularly for emerging economies.

Bitcoin

Does Institutional Adoption Alter Bitcoin's Role?

The financial sector is working to centralize as much Bitcoin as it can. Notable crypto investor Simon Dixon recently shared on X that institutions are keen on buying Bitcoin to prepare for managing potential capital outflow challenges in the future, especially following actions that strip assets in the West.

Since Bitcoin operates on a proof-of-work system, owning it does not provide governance influence or long-term price setting. Still, it does allow for more effective management of short-term price fluctuations. Institutions are in a phase of accumulating Bitcoin, seeking to establish self-custody for themselves and institutional custody for others. This strategy enables them to funnel large amounts of capital into Bitcoin while keeping a backup option for sovereign wealth.

This approach is akin to the British Empire using tax havens as outlets. As Simon points out, Bitcoin serves as a strategic option for managing sovereign wealth in environments where safeguarding large gold reserves requires trusted custodians. The advice remains constant: accumulate more Bitcoin in self-custody this month than last. Any current price suppression should be viewed as an opportunity that won’t last long.

Additionally, the financial sector will likely create volatility using instruments like MicroStrategy and its derivatives. The goal is to maximize margin calls on Bitcoin while increasing leverage tools. This situation may not be purely about cryptocurrency; it resembles a liquidity strategy seen in Silicon Valley, aimed at enhancing returns from venture capital through additional liquidity layered over private equity investments. The current state of cryptocurrency is a technical effort to develop a digital control framework.

Bitcoin as a Financial Lifeboat

The case of Venezuela stands as a powerful testament to the value of Bitcoin. Investor Fred Krueger highlighted that those who clung to Bolivars during the onset of hyperinflation in 2016 had a clear opportunity to acquire Bitcoin when prices were below $1,000; many ended up with nothing instead.

In 2018, when the Venezuelan government introduced the Petro token, investors who chose to buy Bitcoin instead enjoyed returns exceeding 30%. Meanwhile, the Petro, tied to oil, struggled and was eventually discontinued in 2024. This lesson serves as a cautionary tale for BRICS nations. Fred observed that many in Maduro's regime likely held minimal Bitcoin, underestimating their need for it while believing they would remain in power indefinitely. Many of them are likely regretting that choice now.

Bitcoin BTC trading at $92,997 on the 1D chart | Source: BTCUSDT on Tradingview.com