Bitcoin is becoming infrastructure, not just an asset.

The next financial innovation will not only utilize Bitcoin but will also be built on top of Bitcoin.

Written by: Blockchain Knight

Institutional investors no longer question the legitimacy of Bitcoin. With the assets of spot ETFs exceeding $50 billion and companies beginning to issue Bitcoin-linked convertible bonds, the current issue has shifted to a structural level: how does Bitcoin integrate into the global financial system? The answer is becoming increasingly clear: the financialization of Bitcoin.

Bitcoin is becoming a programmable collateral and capital strategy optimization tool. Institutions that recognize this shift will lead the direction of financial development in the next decade.

The traditional financial sector often views the volatility of Bitcoin as a disadvantage, but the recent issuance of zero-coupon convertible bonds by Strategy (formerly MicroStrategy) tells a different story. This type of transaction transforms volatility into upside potential: the higher the asset's volatility, the greater the value of the embedded conversion option in the bond. Provided that solvency conditions are met, such bonds offer investors an asymmetric return structure while expanding the treasury's exposure to appreciating assets.

This trend is spreading. The Japanese company Metaplanet has adopted a Bitcoin-focused strategy, and France's The Blockchain Group and Twenty One Capital have also joined the ranks of "Bitcoin asset management companies." This approach echoes the strategy of sovereign nations borrowing fiat currency and converting it into hard assets during the Bretton Woods system era. The digital version combines capital structure optimization with treasury appreciation.

From Tesla's treasury diversification to Bitcoin asset management companies extending it to balance sheet leverage, these are just two examples of the intertwining of digital finance and traditional finance. The financialization of Bitcoin is permeating every corner of modern markets.

Bitcoin as an all-weather collateral. According to data from Galaxy Digital, the scale of Bitcoin staking loans will exceed $4 billion in 2024, continuing to grow in the centralized finance (CeFi) and decentralized finance (DeFi) sectors. These tools provide a global all-weather lending channel - a feature that traditional lending cannot achieve.

Structured products and on-chain yields. Nowadays, a range of structured products provides embedded liquidity protection, principal protection, or enhanced returns for Bitcoin exposure. On-chain platforms are also evolving: initially driven by retail, DeFi is maturing into institutional-grade vaults, creating competitive returns with Bitcoin as the underlying collateral.

Beyond ETFs. ETFs are just the starting point. As the institutional-level derivatives market develops, asset tokenization fund wrappers and structured notes add liquidity, downside protection, and yield enhancement layers to the market.

Sovereign states adopt. As U.S. states draft Bitcoin reserve bills and countries explore "Bitbonds," what we are discussing is no longer diversification, but witnessing a new chapter in monetary sovereignty.

Regulation is not a barrier, but a moat for early adopters. The EU's MiCA, Singapore's Payment Services Act, and the SEC's approval of tokenized money market funds (MMFs) all indicate that digital assets can be integrated into the existing regulatory framework. Institutions investing in custody, compliance, and licensing today will gain a leading position as global regulatory systems converge. BlackRock's SEC-approved BUIDL fund is a clear example: a compliant tokenized money market fund launched within the existing regulatory framework.

Macroeconomic instability, currency devaluation, rising interest rates, and fragmented payment infrastructure are accelerating the financialization of Bitcoin. Family offices, which started with small directional allocations, are now using Bitcoin as collateral for lending; companies are issuing convertible bonds; asset management firms are launching structured strategies that blend yield and programmable exposure. The "digital gold" theory has matured into a broader capital strategy.

Challenges still exist. Bitcoin continues to face high market and liquidity risks, especially during times of stress; the regulatory environment and the technological maturity of DeFi platforms are also continuously evolving. However, viewing Bitcoin as infrastructure rather than merely an asset allows investors to occupy a favorable position in a system where the appreciation of collateral offers advantages unmatched by traditional assets.

Bitcoin remains volatile and is not without risks. However, under appropriate regulation, it is transforming from a speculative asset into programmable infrastructure, becoming a tool for yield generation, collateral management, and macro hedging.

The next wave of financial innovation will not only utilize Bitcoin but will also be built on top of it. Just as the Eurodollar in the 1960s brought transformation to global liquidity, Bitcoin-denominated balance sheet strategies may create similar effects in the 2030s.