In the world of Bitcoin, there is a silent tax that institutions must pay for holding the cryptocurrency. While Bitcoin represents freedom for many individual adopters, institutions face persistent, measurable costs that accumulate over time. These costs include fees, insurance expenses, accounting friction, and opportunity cost, all of which erode the value of holding Bitcoin.
For individual investors with a strong conviction and a long time horizon, these costs may be manageable. However, for institutions managing large portfolios and bound by fiduciary mandates, the silent tax is becoming increasingly difficult to ignore.
One of the main costs associated with holding Bitcoin is custody fees. Institutions often rely on regulated custodians to hold their Bitcoin securely. These custodians charge fees ranging from 0.35% to 0.50% per year, adding up to significant amounts for large clients. In addition to custody fees, institutions also incur insurance costs and audit expenses, further increasing the overall cost of holding Bitcoin.
The negative carry of holding Bitcoin for institutions is a structural headwind that not only erodes the principal of the cryptocurrency but also limits its usefulness as collateral. This can be a significant challenge for institutions that rely on Bitcoin as collateral to borrow funds or unlock liquidity.
As interest rates rise and regulatory scrutiny intensifies, institutions are facing a tougher decision about holding Bitcoin on their balance sheets. The trade-offs between generating yield and using Bitcoin as collateral are becoming more apparent, leading institutions to reevaluate their strategies.
However, new approaches are emerging that could help institutions break this trade-off. For example, Bitcoin staking allows BTC to be delegated to secure other networks, earning yield in the process. This model offers a way for institutions to earn native yield without giving up custody of their Bitcoin or sacrificing its utility as collateral.
As these solutions continue to evolve, institutions may find new opportunities to maximize the efficiency of their Bitcoin holdings. The shift towards a more sustainable and cost-effective approach to holding Bitcoin could be significant for institutions looking to align with the cryptocurrency’s design while also meeting their financial objectives.