Bitcoin is being "snapped up" by the government: a new recognized wealth or concentrated risk?

Government agencies hold 8% of Bitcoin, and the risk of legalization and centralization coexists. (Synopsis: The governor of Arizona signs the cryptocurrency reserve law, the second state in the United States landed, "HB 2749" key quick look) (Background supplement: the first case in the United States!) New Hampshire Governor Signs 'Passing Bitcoin Reserve Act', Allowing 5% Public Funds to Invest in BTC As of May, competition for liquidity has noticeably intensified. The surge in institutional investors' Bitcoin holdings over the past year has dried up liquidity. According to the latest data, more than 8% of the total circulating supply of bitcoin is now held by government and institutional investors. This unprecedented level of sovereign and institutional involvement in decentralized assets has sparked intense debate: Is this a legitimization of Bitcoin as a strategic reserve asset, or does it portend a centralized risk that threatens the core idea of crypto? Strategic Hedging in a Volatile World For many governments and institutions, accumulating bitcoin reflects a rational strategy in the face of macroeconomic uncertainty. As fiat currencies face inflationary pressures and geopolitical instability continues, Bitcoin is increasingly seen as an alternative to digital gold. Reserve diversification: Some central banks and sovereign wealth funds have begun redistributing portions of their portfolios from fiat currencies and gold to digital assets. Bitcoin's fixed supply of 21 million coins provides a inflation hedge that fiat assets cannot provide. Countries with weak currencies or weak monetary policies, such as Argentina or Turkey, have shown particular interest in BTC as a reserve diversification tool. Institutional legalization: When pension funds, hedge funds, and public companies allocate a small portion of their portfolios to Bitcoin, this conveys confidence to other market participants. High-profile allocations by institutions like BlackRock, Fidelity, and sovereign wealth funds have had a legitimizing effect on the Bitcoin asset class. Bitcoin is no longer just the domain of speculative retail traders; It has found a home in the boardrooms and government coffers. Strategic Autonomy and Sanctions Resistance: In an increasingly fragmented global financial order, Bitcoin offers countries a means to bypass traditional payment channels dominated by the U.S. dollar and the SWIFT system. For sanctioned countries or those looking to reduce their reliance on Western-dominated financial infrastructure, holding Bitcoin offers a form of financial sovereignty. Real inflation hedge: Countries experiencing high inflation are now considering Bitcoin as a functional hedge. For example, the growing Bitcoin reserves in Nigeria and Venezuela are often motivated by the need to hedge their value in the depreciation of fiat currencies. These practical uses further solidify the narrative of Bitcoin as "digital gold." Risk of Exceeding the Threshold: Centralization Concerns While institutional and government adoption brings legitimacy and liquidity, more than 8% of the total Bitcoin supply is concentrated in the hands of a small number of large players, raising concerns about the long-term health of the network. Decentralization erosion: Bitcoin's founding philosophy was built on decentralization and the democratization of finance. The concentration of holdings of a handful of large players ( whether governments or corporations ) threatens this idea. If a small number of entities control most of the supply, there is a risk of collusion, market manipulation or coordinated selling that could lead to market instability. Liquidity impact: Large players typically store their bitcoins in cold wallets or long-term custodial arrangements, which means that these coins are effectively removed from the circulating supply. As more BTC is used for strategic purposes rather than regular transactions, the available liquidity supply shrinks. This can lead to increased price volatility, as small-scale buying and selling pressures in surplus circulation can significantly affect prices. Market distortions and moral hazard: Government purchases and holdings of Bitcoin can inadvertently affect market sentiment and pricing. If a major government suddenly announces a sale or policy change, it could trigger market panic. Moreover, this power could be used as a policy lever, contradicting Bitcoin's promise of independence from political manipulation. Custodial risk and governance implications: When an institution holds Bitcoin through a custodian, the decentralized nature of the network is partially weakened. These custodians can be influenced by political pressure, legal obligations, or even central banks. This can lead to pseudo-centralization, where control of Bitcoin, while not on-chain, is concentrated in a small number of centralized institutions. The specter of sovereign confiscation: History shows that states can and do confiscate assets. The more bitcoin a government holds, the more the regulatory framework is likely to favor tight controls or even forced custody transfers, especially during financial crises. The 1933 gold confiscation in the United States provided a historical precedent that cannot be ignored. Balancing legitimacy with network integrity To ensure Bitcoin's continued resilience as a decentralized asset, the community must remain vigilant. Here are some mitigation strategies and future directions: Encourage retail participation: Broader retail adoption can balance the impact of large players. Educational efforts and more accessible tools are essential. Position transparency: Public disclosure of BTC holdings by institutions and governments may help increase accountability and reduce manipulation concerns. Strengthen non-custodial infrastructure: Communities should invest in technologies that allow large players to protect their assets in a decentralized way ( such as multi-signature, decentralized escrow, ). Policy guarantees: Policymakers embracing Bitcoin should also support the maintenance of a regulatory framework for decentralization and financial autonomy. Although the institutionalization of Bitcoin is accelerating, it is worth noting that more than 85% of the Bitcoin supply is still held by non-institutional investors, with retail investors remaining the dominant force. This means that despite the large amount of BTC locked in ETFs or corporate vaults, the decentralized nature of the market has not fundamentally shaken. Some worry that with so many bitcoins "dormant" or held in escrow, the reference value of on-chain data may be waning. This concern is not unfounded, but it is not new. Looking back, Bitcoin's main trading activity has always been concentrated off-chain, especially on centralized platforms like Coinbase, BN, and early FTX. These transactions are difficult to detect on-chain, but have a significant impact on market prices and structures. The situation we face today is similar, but the analytical tools we rely on have become more sophisticated. Changes in ETF flows and corporate and national holdings are often subject to disclosure obligations, which in turn provides market analysts with more traceable and transparent information than traditional trading platforms. Overall, institutional interest in Bitcoin has reached unprecedented levels. From ETFs and corporate coffers to national reserves, institutional holdings of bitcoin have exceeded 2.2 million BTC and continue to grow. Undoubtedly, this inflow injected significant stability into the market during bear markets. However, there are hidden concerns beneath stability: Bitcoin is gradually financialized, and its price volatility is increasingly influenced by macroeconomic sentiment and correlation with traditional financial assets. This connection is reshaping the original myth of Bitcoin's independence. More than 8% of Bitcoin is now in the hands of governments and institutions, which is a double-edged sword. On the one hand, it marks the historic legitimization of cryptocurrencies as assets worth stockpiling. On the other hand, it introduces centralization pressures that could undermine Bitcoin's fundamental principles. Related stories Bitcoin hits an all-time high in Turkey! 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