Bitcoin's Upcoming Pinnacle: The Advent of Institutional Finance Is Upon Us Already
In 2024, institutions started integrating bitcoin into their portfolios more seriously. Headlines were filled with announcements of bitcoin treasury allocations, as pension funds, endowments, and corporations made moves to store bitcoin safely. But this was just the tip of the iceberg. 2025 is poised to be the year institutions go all in, embracing a new generation of financial products built around bitcoin.
These new products offer innovative ways for investors to gain exposure to bitcoin while addressing key institutional concerns like jurisdictional risk, regulatory compliance, and tax efficiency. The age of bitcoin-native financial engineering is upon us, and it's set to reshape traditional finance in significant ways.
Secure Bitcoin Custody
One of the most intriguing advancements in bitcoin custody is the concept of the "multi-jurisdictional quorum" – distributed custody arrangements where private keys are held across multiple regulated entities in different jurisdictions. This approach provides a hedge against jurisdictional overreach and regulatory capture, ensuring that no single entity has the power to block access to bitcoin holdings.
Firms like Onramp have been pioneering this approach, partnering with SOC2-compliant custodians in various regions to create a resilient, fault-tolerant custody framework. In a typical multi-signature ("multi-sig") wallet, a quorum of private keys is required to authorize a transaction. By storing these keys in different jurisdictions, institutions can insulate themselves from political and regulatory risks.
Bitcoin ETPs: The Institutional Gateway
The introduction of bitcoin exchange-traded products (ETPs) in 2024 was a game-changer. These financial products allow institutions to gain direct exposure to bitcoin without the operational complexities of custody.
According to Fidelity Digital Assets, the total assets under management (AUM) for spot bitcoin ETPs reached an astounding $114 billion by the end of 2024. Bitcoin ETPs captured a significant portion of gold ETF AUM in just 10 months, a feat that underscores the pent-up demand for institutional-grade access to bitcoin.
The arrival of options on bitcoin ETPs has further expanded their utility, enabling institutional investors to express nuanced views on bitcoin through traditional exchanges. With an increasing number of entities, including hedge funds, pension funds, and banks, participating in the ETP market, it's expected to grow even further in 2025.
The Re-Emergence of Bitcoin Trusts
While the focus on bitcoin financial products has largely been on ETPs, a quieter yet significant trend has emerged – the revival of Bitcoin trusts that offer in-kind delivery and tax-efficient structures. Unlike spot bitcoin ETFs, which require cash sales, bitcoin trusts enable direct bitcoin transfers to investors, avoiding taxable events.
At the forefront of this trend is Onramp, which has been working to breathe new life into bitcoin trusts by eliminating the need to sell and repurchase bitcoin, borrowing from the trust structure's traditional appeal to institutions.
Bitcoin Bonds: A New Asset Class
For businesses and governments alike, bitcoin bonds offer a novel way to capitalize on the asset's unique properties while mitigating its volatility. Companies hesitant to embrace bitcoin as a reserve asset often cite price fluctuations as a barrier. Bitcoin bonds allow businesses to maintain price exposure while generating cash flow and liquidity.
In this model, bitcoin serves as collateral for bonds issued by businesses or governments. This innovative structure creates a virtuous cycle, where higher demand for bitcoin bonds drives greater bitcoin adoption, further bolstering its price and utility.
Bitcoin-Backed Mortgages
The traditional mortgage market has long been constrained by high fixed rates and rigid qualification standards. But bitcoin-backed mortgages are set to disrupt this model. Imagine a 30-year fixed-rate mortgage secured by bitcoin collateral, offering a lower interest rate compared to the industry standard.
This innovative approach takes advantage of bitcoin's predictable scarcity, its four-year halving cycles, and its historical price appreciation. In this model, as the price of the bitcoin collateral increases, borrowers can reduce their debt by either paying down the mortgage or using the rising collateral price to offset outstanding balances. This concept of a self-repaying mortgage is revolutionary, allowing individuals to hold onto their bitcoin without triggering taxable events while using its value to secure homeownership.
As bitcoin financial products continue to evolve, traditional finance institutions are being forced to adapt. Asset managers, brokerages, and banks that once dismissed bitcoin as a niche asset are now actively building infrastructure to support it. Firms like Morgan Stanley's E-Trade have already integrated direct bitcoin trading into their platforms, marking the beginning of seamless access to bitcoin alongside stocks and ETFs for retail brokerage clients.
New financial products designed specifically for digital assets are also emerging as traditional asset managers look to capitalize on the growing demand for exposure to bitcoin's asymmetric upside. The rapid development of bitcoin financial products is making a compelling case for institutions to integrate bitcoin into their financial strategies, treating it as a core portfolio asset, much like gold in the 1970s or tech stocks in the 2000s.
In response to the increasing integration of bitcoin into institutional portfolios, the demand for Bitcoin-backed loans is on the rise. Institutions are exploring options like Bitcoin bonds and bitcoin-collateralized mortgages to leverage Bitcoin's properties without being overly exposed to its volatility. For instance, Bitcoin bonds allow companies to issue bonds with Bitcoin as collateral, mitigating price fluctuation concerns.
Bitcoin-backed mortgage products, such as the 30-year fixed-rate mortgage secured by Bitcoin collateral, are poised to disrupt the traditional mortgage market by offering lower interest rates and the potential for self-repaying mortgages due to Bitcoin's price appreciation. This new generation of financial products not only addresses key institutional concerns but also broadens investment opportunities in this emerging digital asset class.
