The illusion of institutional bitcoin adoption

Michael Saylor recently said that only 450 bitcoins are mined per day, and once big capital flows into the market, there will be no natural sellers left. From that point on, price can only go up.

I have a question: how “natural” are the sellers that companies like Strategy are buying their bitcoins from?

Here’s why I’m asking. Do we really believe that governments will allow large corporations to take direct ownership of an asset that the state can’t freeze, confiscate, or control? That seems unlikely. In practice, most of the bitcoin these companies purchase ends up under the control of custodians, not in wallets the companies hold themselves.

Imagine a single custodian serving several companies like Strategy:

• One company buys 100 BTC. The custodian says, “Here’s an address with 200 BTC - 100 of those are yours.”
• Another buys 150 BTC - the same address again, and now 150 of those coins are “theirs.”
• A third one buys 200 BTC - and, again, the custodian claims all 200 are theirs.

Each client sees a signed message from the custodian proving control over that address. But none of them sees what’s promised to the others. It’s entirely possible that only 200 BTC actually exist - not the full 450 that were “sold.”

Sure, that’s an oversimplification, and pulling off such a scam at scale would be hard. But the idea stands: institutions often don’t buy bitcoin itself, but rather promises to store it. That opens the door for fractional reserves and manipulation.

What are the chances all clients of one custodian try to withdraw their coins at the same time? Pretty low. Which makes fractional reserve storage very tempting.

And under such a system, large institutions could appear to hold more than 21 million BTC. Fake ones, of course - and they’d never be worth what real bitcoin is.

Just a reminder: when you swap on rabbit.io, you don’t get IOUs. You get real bitcoin, sent straight to your own wallet.