The Bitcoin Paradox: Born to disrupt traditional finance, now thriving within it

Bitcoin wasn’t created for this. It wasn’t supposed to end up in the hands of Wall Street brokers, pension fund managers, or multinational clearinghouses. It was meant to overthrow them.

But here we are in 2024, and Bitcoin is sitting pretty at $93,000, more than double its value from a year ago. But the king’s rise isn’t about freedom from the system anymore. It’s about thriving within it.

Two years ago, the collapse of FTX and the steep fall in crypto prices left Bitcoin’s future hanging by a thread. Rising interest rates, scandals, and what seemed like endless skepticism pushed Bitcoin into a corner.

Regulators smelled blood. Critics called it a bubble. Bitcoin’s grand vision (peer-to-peer transactions with no middlemen) looked dead in the water.

Yet here we are. Wall Street is riding the Bitcoin train harder than ever, turning what was meant to be the financial revolution of the century into just another line item on balance sheets.

Wall Street’s playbook

The financial elite have hijacked Bitcoin. BlackRock’s Bitcoin spot exchange-traded fund (ETF) is amassing billions in assets. UK pension funds and big-time asset managers in the City of London are getting their piece of the action.

Bitcoin is no longer the weapon of choice for the rebels. It’s a trophy asset for the same institutions it was built to destroy.

But this isn’t some nod of approval for Bitcoin’s ideals. It’s a cash grab. Wall Street doesn’t care about decentralization. It cares about fees. Bitcoin has become a product. It sits under the same centralized systems—like the Depository Trust & Clearing Corporation—that control nearly all stock trades in the United States.

Ironically, the movement that shouted “down with the banks” is now cozying up to them. It’s not because Bitcoin has changed, though. It still has no intrinsic value. It produces no income. Its price is still driven by retail speculation. Yet, financial advisors are urging clients to include it in “modern” portfolios. 

The precedent is alarming. Pension funds are dabbling in Bitcoin, and fiduciaries feel pressure to follow the crowd. Even small crypto allocations could ripple through institutional portfolios in the next market downturn.

Regulators drop the ball

And where are the watchdogs? Nowhere coherent, that’s for sure. Regulators are still fumbling, with fragmented oversight and no unified approach to Bitcoin’s risks. Agencies pull in different directions, leaving gaps big enough for Wall Street to drive a truck through.

The lack of transparency in these financial products doesn’t help. Many investors have no idea what happens to their assets when institutions move them around. And then there’s the looming threat of the next U.S. administration rolling back regulations. A deregulatory environment could make FTX look like a minor hiccup.

Imagine a world where institutional players, free from oversight, package Bitcoin into complex financial products. By the time the next crypto crash hits, those products could be sitting in retirement accounts and pensions. It’s not a question of if, but when the fallout spreads. We all know it always does.

Rehypothecation: Bitcoin’s invisible threat

If institutional control over Bitcoin wasn’t bad enough, here comes rehypothecation to make things worse. In simple terms, this is where the same Bitcoin gets pledged as collateral for multiple loans. It’s like one dollar being spent ten times over. The result? A house of cards. 

Rehypothecation is a ticking time bomb. If one borrower defaults, it creates a domino effect of obligations that can wipe out liquidity across the market. The 2022 crypto crash showed just how devastating this practice can be. Many platforms engaged in aggressive rehypothecation faced liquidity crises, leaving investors out in the cold.

But the real issue is that investors are often in the dark. Most crypto lending platforms don’t disclose their rehypothecation practices, leaving people clueless about the risks. And once rehypothecated Bitcoin is lost—whether through mismanagement or hacking—it’s gone for good. 

This practice also suppresses Bitcoin’s price by inflating its perceived supply. Instead of being scarce, Bitcoin starts to look like it’s everywhere, which messes with market dynamics and investor confidence.

Wall Street’s profit-driven mindset sidelines technological advancements in favor of short-term gains. Startups, the backbone of blockchain innovation, are being squeezed out. What’s left is a market that’s more about maintaining the status quo than pushing boundaries. 

And then there’s the volatility. High-frequency trading and algorithmic strategies, hallmarks of institutional trading, amplify price swings. Retail investors looking for stability could be driven away, leaving Bitcoin in the hands of speculative giants.

What happens next depends on who holds the power. But one thing’s for sure. Bitcoin’s soul has taken a backseat to its price tag.