Institutional adoption of Bitcoin is progressing, but a growing concentration of BTC in the cash reserves of a few companies is causing concern. Sygnum Bank warns that this centralization could make Bitcoin unsuitable as a reserve asset, particularly for central banks.
BTC is concentrated in the hands of a few companies
Since the beginning of 2024, Bitcoin adoption by companies and financial institutions has been growing steadily. The launch of spot Bitcoin ETFs, notably by major asset managers such as BlackRock and Fidelity, has allowed many companies to gain exposure to the price of BTC and thus protect themselves against the loss of value of the dollar.
However, these new products remain dependent on trusted third parties and do not allow users to fully benefit from Bitcoin’s decentralization and censorship resistance properties. This is why several companies have chosen to allocate part of their cash reserves to the purchase of “real” BTC, although some use custody services.
Strategy, led by Michael Saylor, began purchasing Bitcoin in 2020. The company now holds 582,000 BTC, worth more than $62 billion, representing an unrealized gain of $21.6 billion.
These almost continuous purchases have put significant upward pressure on the price of BTC, while providing a concrete example for other companies, such as GameStop, Tesla, and TwentyOne, which have in turn followed this strategy.
However, such a concentration of BTC in the hands of a small number of players could slow down the adoption of Bitcoin by other entities, whether through direct ownership or via ETFs.
Strategy alone holds nearly 3% of all BTC in circulation, while all bitcoins held in cash represent approximately 17% of the total. This figure becomes even more significant when considering the estimated 3 to 4 million BTC that are lost or unrecoverable.
BTC cash holdings create systemic risk for the Bitcoin price
Thus, the concentration of BTC in the reserves of a few companies could have a significant impact on the price of Bitcoin if they decided to sell en masse, whether in a coordinated manner, in response to the same event, due to a common need for liquidity, or following an attack.
It should also be remembered that most of these companies have taken on debt to acquire more Bitcoin. Therefore, if the price of BTC falls too sharply and too quickly, these players could be forced into liquidation, triggering a cascade of sales, accentuating selling pressure, and causing further liquidations.
Furthermore, there is an additional risk of an attack or bankruptcy not of the companies themselves, but of the entities responsible for holding BTC. Such an event could trigger panic on the markets.
Coinbase, for example, is believed to hold around 3 million BTC on behalf of third-party companies or spot Bitcoin ETF issuers.
This week, Swiss bank Sygnum warned of the dangers of such concentration, arguing that it could jeopardize the adoption of Bitcoin as a reserve asset, particularly by central banks.
