Bitcoin is evolving into a macro asset, aligning with traditional risk markets and facing systemic pressures. The rise in institutional involvement is reshaping Bitcoin’s market structure, increasing systemic risk and potentially weakening self-custody norms. A split may emerge between institutional and self-sovereign Bitcoin, impacting its neutrality and mission.

Institutional capital is transforming Bitcoin into a less volatile asset, tied to global economic conditions and policy shifts. Bitcoin’s correlation with traditional assets like SPY and QQQ, and credit indicators like HY OAS, indicates its shift towards a tech-heavy growth asset. Bitcoin now thrives in optimism but suffers in times of financial market fear.

Bitcoin’s deepening negative correlation with credit risk signals its sensitivity to systemic risk. While this institutionalization brings legitimacy, it also exposes Bitcoin to market sentiment fluctuations. However, Bitcoin stands to benefit from accommodative financial conditions and rising liquidity, offering opportunities for traders to anticipate its movements within a macro portfolio.

The erosion of Bitcoin’s core principles, such as decentralization and financial sovereignty, is a growing concern with increasing institutionalization. Custodial ETFs and funds holding a significant portion of Bitcoin supply raise centralization risks. The rise of ETFs may discourage self-custody, potentially undermining Bitcoin’s value as a permissionless money system.

As institutional capital flows into Bitcoin, there is a risk of bifurcation into a regulated institutional version and a stigmatized “wild” version, threatening Bitcoin’s core mission. Balancing institutional involvement with Bitcoin’s original principles of neutrality and freedom is crucial to preserving its essence amidst growing mainstream adoption.

Read more at CoinTelegraph: Bitcoin’s Institutional Era: The Cost Of Legitimacy