For more than a decade, Bitcoin has been defined by what it resists: monetary debasement, discretionary policy, and centralized control. Its success as a store of value has been remarkable.
Trillions of dollars in market capitalization, deep global liquidity, institutional custody infrastructure, and increasing regulatory clarity have transformed Bitcoin from an experiment into a recognized asset class.
But institutionalization brings a new question, one that capital markets inevitably ask of any asset that matures: What does it do?
Today, most Bitcoin remains economically idle. It is held, custodied, and occasionally traded, but rarely deployed. That was an acceptable equilibrium when Bitcoin’s primary role was proving monetary credibility. It is no longer sufficient for an asset now owned by ETFs, funds, corporates, miners, treasuries, and sovereign-adjacent balance sheets.
The next phase of Bitcoin’s evolution is not about changing its monetary properties. It is about enabling Bitcoin to play an active role in the financial system, without compromising the principles that made it valuable in the first place.
Institutional Assets Don’t Stay Idle Forever
Historically, once an asset becomes institutionally held at scale, it becomes productive. Government bonds collateralize repos. Gold backs credit and settlement. Equities are lent, margined, and structured. Cash is constantly rehypothecated. Capital efficiency is not a speculative impulse. It is a structural feature of financial systems.
Bitcoin is now entering that same phase.
ETF approval, improved custody, standardized accounting treatment, and risk committee familiarity have lowered barriers to ownership. But they have also exposed a growing inefficiency: large pools of Bitcoin sitting dormant while the rest of the financial system continues to optimize around yield, collateral utility, and balance sheet efficiency.
The question institutions are beginning to ask is not whether Bitcoin should become productive, but how, and under what constraints.
Bitcoin Treasury Companies and the Limits of Passive Exposure
The experience of Bitcoin-centric public companies offers an early preview of where purely passive Bitcoin exposure runs into constraints.
Firms such as MicroStrategy and other Bitcoin treasury vehicles were initially rewarded with substantial net asset value premiums. For equity investors, these companies offered one of the only regulated paths to gain Bitcoin exposure at scale. That scarcity justified a premium.
Over time, however, those premiums have proven unstable, and in many cases compressive.
As Bitcoin ETFs entered the market, access to spot BTC exposure became cheaper, cleaner, and more transparent. At the same time, investors became more sensitive to dilution dynamics, financing structures, and the fact that holding Bitcoin on a corporate balance sheet does not, by itself, generate cash flow.
The result is a structural lesson: as Bitcoin exposure becomes commoditized, passive balance-sheet accumulation alone is unlikely to sustain valuation premiums.
For Bitcoin-native public companies, productivity becomes essential.
If Bitcoin is held purely as inert inventory, equity valuations will increasingly converge toward NAV. If Bitcoin can be deployed conservatively, without leverage or opacity, to support revenue, security, or economic guarantees, it becomes a strategic asset rather than a static one.
In that sense, DATs are not just balance-sheet experiments. They are early tests of whether Bitcoin can evolve from a passive store of value into a productive institutional asset.
Why “Productive” Does Not Mean “Financialized at All Costs”
There is understandable skepticism around Bitcoin-based yield. Past cycles have conditioned the market to associate “BTC yield” with rehypothecation, opaque leverage, or unsecured counterparty risk.
That skepticism is healthy.
Institutional adoption does not require Bitcoin to mimic legacy finance’s excesses. In fact, it requires the opposite: clear risk boundaries, transparent mechanics, and conservative primitives.
Productive Bitcoin does not mean transforming BTC into a high-velocity trading instrument. It means enabling Bitcoin to serve as:
- Credible collateral
- Security backing for economic guarantees
- A base asset for settlement and insurance
- A source of yield derived from protocol utility, not leverage
The distinction matters. Yield extracted from opacity collapses under stress. Yield derived from structural utility compounds alongside adoption.
The Infrastructure Gap Holding Bitcoin Back
Unlike other asset classes, Bitcoin was not born into a financial stack designed for extensibility. It was deliberately minimal. As a result, Bitcoin lacks native infrastructure for:
- Expressing time-based commitments
- Participating in programmable security models
- Integrating with external economic systems without trust assumptions
This gap explains why much of Bitcoin’s economic activity migrated around it rather than through it, into custodians, centralized lenders, or wrapped representations on other chains.
But reliance on wrappers and intermediaries is precisely what institutions are trying to reduce.
The emerging opportunity is not to abstract Bitcoin away, but to build infrastructure that allows Bitcoin to remain natively secure while becoming economically expressive.
Productive Bitcoin as a Security Primitive
One of the most underappreciated roles Bitcoin can play is as a security and trust anchor for other systems. Bitcoin’s unmatched properties, immutability, censorship resistance, and economic finality, make it uniquely suited to back guarantees that require long-term credibility. This includes:
- Securing decentralized protocols
- Backing insurance and risk pools
- Acting as reserve collateral for digital assetsEnforcing economic penalties without human discretion
In these contexts, Bitcoin does not need to move frequently. It needs to be credible. Yield emerges not from velocity, but from participation in systems that value security over convenience.
This reframes Bitcoin’s role from passive reserve to economic bedrock.
Institutional Constraints Are a Feature, Not a Bug
Institutions impose constraints: custody rules, capital charges, auditability, and governance oversight. Many in crypto view these as friction. In reality, they are filters that separate durable systems from speculative ones.
For Bitcoin to become productive at an institutional scale, mechanisms must be:
- Non-custodial or credibly neutral
- Transparent and auditable
- Resistant to discretionary intervention
- Compatible with long-term holding horizons
Short-term yield maximization is irrelevant to pension funds, insurers, miners, and treasuries. What matters is reliability across market cycles. This is why the most important Bitcoin financial infrastructure will likely look boring by crypto standards, and indispensable by institutional ones.
Shift in Mental Models
Bitcoin’s first era was about proving scarcity. Its second era was about proving legitimacy. Its third era will be about proving utility, without sacrificing either.
That does not require changing Bitcoin. It requires changing how we think about what Bitcoin can secure, enable, and underwrite.
A productive Bitcoin is not one that trades more. It is one that anchors more value.
As capital continues to flow into Bitcoin, the pressure to make it economically useful will only increase. The systems that succeed will be those that respect Bitcoin’s constraints while extending its role in the global financial architecture.
The question is no longer whether Bitcoin belongs in institutional portfolios. That debate is over.
The question now is whether Bitcoin can evolve from a static asset into a foundational one.
Boris Alergant is the Head of Strategic Initiatives at Babylon Labs. He was previously Director of Stablecoin at Ripple, and an investment banker at JP Morgan and MUFG.
