However, it appears we are in 2024, and Bitcoin is soaring at $93,000, more than double its value a year ago. The King is no longer Ascending to the Title of Freedom. It is about existing inside. About two years ago, FTX’s collapse and crypto price’s nose-dive presented the risk of Bitcoin’s future potentially hanging by the proverbial thread. As rates increased, scandals cropped up, and relentless scepticism seemed to victimize Bitcoin.
The smell of blood made the regulators dizzy. Those who were sceptical called it a bubble. Bitcoin’s uber-grand idea (p2p payments with no intermediaries who weigh down the transaction) has sunk to the bottom of the lake. Bitcoin Paradox Born, but We Are Here. Wall Street’s finally come charging at Bitcoin faster than ever before, the financial revolution of this century only ending up as another entry on the balance sheets.
Wall Street’s playbook
It is the rich class that has made Bitcoin its own. BlackRock’s Bitcoin spot exchange-traded fund (ETF) is a phenomenally successful investment. The City of London’s pension funds and the notable asset managers now have their share in the game. Bitcoin is no longer the rebels’ weapon of choice. Bitcoin is the prize of the same institutions it was created for the destruction of those.
But this is not a compliment to Bitcoin’s ideas of freedom. It’s like an opportunistic robbery. Wall Street is not interested in the decentralization. All it wants is fees. Bitcoin has become a commodity. It is found in the same places, for example, the Depository Trust & Clearing Corporation, that mostly dealers of stocks in the USA have under their control. Paradoxically, the movement which was chanting “down with the banks” now is fine with them. However, only the banks have slaves, as Bitcoin has not.
It still remains a product of very little value. It doesn’t make income. Its price is still controlled by selling among retailers instead of intrinsic value. Still, financial advisors are recommending clients doubted stocks. Things are getting serious out there. Pension funds are starting to dabble in Bitcoin, and fiduciaries feel tempted to stick to the risky path. Even tiny allocations in crypto might lead to several investment movements through the institutional portfolios when the market goes through a severe downturn.
Regulators drop the ball
And where are the watchdogs? Cohesion is nowhere to be found, and that’s what I know. Regulators are still fumbling the ball, as they have no comprehensive criteria and guidance for Bitcoin’s potential hazards. Agencies are pulled in various directulados, thus creating loopholes large enough for Wall Street lorries to drive through. Bitcoin Paradox Born, This lack of transparency in financial goods is not helping. In the institutions that move these assets around, some investors do not know the whereabouts of their assets.
Another threat to ponder is the probability of the following U.S. administration rolling back rational regulations. Deregulation could turn making FTX a trivial bump on the road. Think of a world where institutional players, without oversight, transform Bitcoin into enormously complex financial products. Consequently, if and when such a situation arises, those products may be found in pension funds and retirement accounts. It is not a question of “if” but “when” it ripples down into the rest of the economy. Well, none of us need to worr.
Bitcoin’s invisible threat
Institutional control over Bitcoin is not the only risk factor, but rehypothecation worsens the situation. Rehypothecation, in simple words, is when the same Bitcoin gets pledged more than once as collateral for loans. Imagine one dollar being used ten times; that is what the lender is doing. The result? A house of cards. Rehypothecation is a time bomb; it can blow up anytime. The failure of one borrower touches the next debt, which may lead to the drying up of the market. This was even evident during the 2022 crypto crash. Overzealous rehypothecation of many platforms caused liquidity crises, and their investors were left out in the cold.
Investors are often in the dark about crypto lending. Companies do not disclose the practice of rehypothecation, where banks use their clients’ assets for their own purposes. If the rehypothecated Bitcoin is lost, the owners are not compensated. This leads to fear of a low number of coins and subsequently affects the price. It is possible to manipulate the market. Therefore, trust is lost. Secondly, Wall Street values profits more than long-term goods, which results in the rejection of better blockchain tech. Bitcoin Paradox Born. Thirdly, price fluctuation is caused by rapid trading. These changes frighten many retail investors, meaning Bitcoin falls into the hands of speculative traders. Finally, attention shifts from what Bitcoin is to its price only.
Also Read: MicroStrategy’s Bitcoin Strategy Under Scrutiny
FAQs
Why is Wall Street interested in Bitcoin now?
Wall Street sees Bitcoin as a profitable asset rather than a tool for decentralization, leveraging its potential for high returns through ETFs and institutional investment products.
What are the risks of institutional control over Bitcoin?
The growing institutional influence may lead to rehypothecation, where the same Bitcoin is used as collateral multiple times, potentially causing market instability.
Are regulators keeping up with Bitcoin's institutional adoption?
Not effectively regulatory frameworks are still fragmented, creating loopholes that financial institutions might exploit, increasing the risk of financial instability.
How does Bitcoin's role in traditional finance affect its original vision?
Bitcoin, initially designed to disrupt traditional finance, is now being co-opted by the very institutions it aimed to replace, shifting its focus from decentralization to profit generation.
