How the institutionalization of Bitcoin has called into question the idea of decentralization.
Since Bitcoin began attracting a wider audience, there have been attempts to fit it into the familiar framework for investors by drawing analogies with the assets it was originally meant to replace.
The dominant narrative in recent years has been that of digital gold. The first cryptocurrency was presented as a safe-haven asset, a hedge against inflation and the instability of the fiat world. However, the latest bear market has shown that Bitcoin has not held up in this role, and the community now sees it as a contender for global reserve currency status.
ForkLog sought to understand why new roles are being assigned to this digital asset and what this could lead to.
Gold is One
Bitcoin emerged as a technological and political response to the fiat monetary system: centralized issuance, dependence on states and banks, and asymmetric access to money. But as cryptocurrency began attracting capital and moving beyond a narrow community, it inevitably became entangled in the traditional financial system.
The concept of a protective asset or a means of capital preservation is a social role that has developed over decades and even centuries. When these qualities are attributed to Bitcoin, expectations arise for it to behave accordingly: to exhibit stability, predictability in crises, and an inverse relationship with market risk. While it once managed to meet these expectations, the narrative of "digital gold" has now completely collapsed.
This process is less about changes in Bitcoin itself and more about its place within the traditional financial system. Looking back at the journey of the first cryptocurrency, a crucial stage stands out: recognition from TradFi. The launch of the first spot ETF and the addition of cryptocurrency to the reserves of both public and private companies were seen by the broader community as confirmation of the asset's maturity.
However, it has become clear over time that the presence of institutional investors does not always benefit the asset. Analysts at Deutsche Bank acknowledged that as the share of large capital decreases, trading volumes drop, making Bitcoin more vulnerable to sharp price fluctuations.
As a result, the first cryptocurrency has transformed from an anti-systemic asset into a familiar financial instrument, with ETFs marking the culmination of this process. Bitcoin has become entangled in mechanisms it was supposed to protect against: liquidity flows, margin sell-offs, and sensitivity to external shocks.
This has also been reflected in market dynamics. While gold and Bitcoin previously showed correlation, this relationship has now dropped to zero for the first time since 2022. While the precious metal reached historical highs, the first cryptocurrency displayed subdued dynamics and eventually plummeted, dragging the rest of the market down with it.
Amid the collapse of the previous narrative, the market has not given up on attempts to find a new one. The same media figures and opinion leaders who recently spoke of digital gold are now proposing Bitcoin as a global reserve currency.
What’s the Point?
The shift from the status of digital gold to that of a reserve currency is telling. It reflects not so much a transformation of Bitcoin itself but an attempt to preserve its familiar place in the financial hierarchy.
A reserve currency is the foundation of global financial infrastructure. International trade, debt markets, lending, and other mechanisms are built around it. Such status implies stability and strength, qualities that Bitcoin, for all its aspirations, currently lacks.
Discussions about a potential replacement for the dollar as the reserve currency have intensified amid political and economic instability in the U.S. The imminent change in the head of the Federal Reserve, the consequences of trade wars, escalating international conflicts, and instability within the country undermine trust in the U.S. dollar. Increasingly, statements are being made about plans to abandon it in trade settlements, with the dollar becoming a toxic instrument for some countries.
However, its weakening does not automatically lead to the emergence of an alternative. Reserve currencies are formed as a result of infrastructural, political, and economic dominance. It is at this juncture that the crypto community is attempting to assign Bitcoin a new, more prestigious role.
Yet, while the status of a digital equivalent to gold allowed for some debate, the idea of a global reserve currency does not withstand scrutiny. Proponents of this narrative overlook Bitcoin's main advantage—its limited supply. If the asset is to serve global settlements and reserves, it must be available in sufficient volume.
At the current price of $69,100, the total value of all possible 21 million BTC is around $1.4 trillion. This is insignificant compared to the scale of the global economy and international financial markets.
Moreover, the limited supply makes the asset deflationary, which encourages accumulation rather than circulation. This, in turn, contradicts the logic of a global reserve currency. Even if the community were to decide to lift the cap on new coin issuance, it would strip the first cryptocurrency of its key characteristic—trust in the immutability of the rules. Thus, such discussions appear particularly paradoxical when voiced by industry leaders.
Bitcoin was created as an alternative to the fiat system, not as its new pillar. By assigning it functions that require stability and institutional governance, the industry is dooming itself to gradually lose the very meaning of decentralization.
The Cost of Acceptance
In its white paper, Bitcoin was primarily described as a decentralized payment system that allows value to be transferred directly, without the involvement of banks and intermediaries. A currency not controlled by external forces, accessible to any user of the network.
However, in its current form, Bitcoin is no longer a project outside the system. It now serves institutional capital flows and responds to the same signals of liquidity and risk as other financial instruments. The main role in this transformation has been played by the community itself, which has consistently tried to fit Bitcoin into the system it was once created to oppose.
It is now impossible to return the first cryptocurrency to its decentralized roots. Yet, it cannot be labeled as part of TradFi either. As a result, Bitcoin finds itself in an intermediate position: too decentralized to be a stable currency and too institutionalized to remain an anti-systemic tool.
It remains the flagship of the crypto market, making its evolution significant as a precedent. Other digital assets will follow (and some already are) the same path of acceptance—through institutionalization, regulation, and adaptation for the mass user.
Perhaps the best course for the industry is to stop searching for meanings for Bitcoin and leave that to Wall Street. Instead, it should address a more important question: if mass adoption leads to the loss of the decentralized financial world envisioned by Satoshi Nakamoto, are cryptocurrencies truly an alternative to the existing financial system, or are they merely a more technological and profitable tool within it?
Text: Alisa Ditz