Bitcoin's Institutionalization: A Layered Approach to Financialization

Michael Saylor claims that Bitcoin can be used without changing its fundamental nature. He argues that financial instruments based on BTC do not alter the asset itself, but rather create new products for actors in the market who cannot or do not want to own Bitcoin directly.

Saylor's theory is put into practice by his company, Strategy, which has implemented a 'Digital Credit Capital Framework' made up of five components. These include maintaining a USD reserve, revising dividend policies, authorizing repurchases of preferred securities and common stock, and allowing the sale of BTC under specified conditions.

The market is already showing signs of Bitcoin's institutionalization, with U.S. spot BTC ETPs holding almost 1.3 million BTC, or approximately 6.4% of the supply in circulation. Fidelity Digital Assets has raised questions about whether Bitcoin's traditional four-year halving cycle is becoming less significant as capital flows play a larger role in price discovery.

Saylor warns that institutional adoption must occur in relation to Bitcoin and not make use of its protocol, to avoid 'iatrogenic' harm caused by well-intentioned attempts to improve the network. He believes that the compliance features, yield products, credit tranches, and dollar-pegged structures can operate on top without altering the rules of the network.