Wall Street Killed Bitcoin

November 17, 2025 | When Bitcoin was first introduced in 2009, the token and the accompanying blockchain technology was heralded as a new means of exchange and proliferated without much encouragement. Bitcoin was billed as a replacement for depreciating fiat currencies and the financial system that facilitates the legal tender monopoly of most governments. But instead of becoming a stable means of exchange and thus an alternative to an ever depreciating fiat dollar, Bitcoin instead mutated into a vastly profitable speculative vehicle. That profitability caught the attention of Wall Street, but now the bloom is off the proverbial rose. The chart below shows the Bitcoin futures vs gold futures YTD.

The first Bitcoin exchange traded fund in the U.S., the ProShares Bitcoin Strategy ETF (BITO), was introduced on October 19, 2021. This was a futures-based ETF, meaning it tracked Bitcoin's price through Bitcoin futures contracts traded on the Chicago Mercantile Exchange, not by holding actual Bitcoin. This derivative allowed more investors to play the Bitcoin market and made the market appear larger, but it also tied the crypto token indirectly to the fortunes of the fiat world and particularly to the US financial markets now dominated by mechanical investment strategies.

ETFs are the doomsday machines of the financial world, exaggerating both the increases and declines in price of the underlying assets. ETFs can magnify market volatility, particularly leveraged and single-stock ETFs such as those that are focused on Bitcoin. This fact seems to have an outsized impact on the cash price of Bitcoin. There really is no underlying, visible forward “market” in the tokens that is connected to the cash market for Bitcoin. 

Like all ETFs, when more cash flows in, the more creation units – not Bitcoin – the ETF buys. When a spot Bitcoin ETF buys, it is responding to increased demand for its shares, which creates a premium over the price of the underlying Bitcoin. This process is managed by an Authorized Participant (AP) who buys ETF shares on the open market, then delivers them to the ETF provider in exchange for cash. The provider then uses this cash to purchase actual Bitcoin, which is added to the fund's custody, and new ETF shares are created to match the new holdings.

Unlike stocks and bonds that feature a deep forward market for long and short positions for the basis, which tend to dampen price movements in the cash, the trading in Bitcoin is mostly in spot cash and, importantly, is not linked to other markets for cash and perpetual futures (“perps”) that pretend to be part of the Bitcoin world.  When a large seller (aka a “whale”) sells a large block of Bitcoin, the market lacks immediate visibility on the sale and thus the ability to absorb the information about the trade. The fact of ETFs trading Bitcoin, indirectly, appear to make this weakness even more pronounced.

Back in January, Chen, Xu and Yong (2025) published an article in the International Review of Financial Analysis that made some important observations about the impact of futures and ETFs on Bitcoin. “We find that the BITO introduction significantly changes the investor structure in Bitcoin futures, with ETF asset managers being the major long-side participants against the short-side hedge funds. Furthermore, market participants become more concentrated and the market liquidity improves in the Bitcoin futures after the BITO introduction.” But what liquidity exactly?

The fact of Bitcoin ETFs and futures does nothing to address the structural inefficiency of Bitcoin itself. Unlike other securities and currencies, the connection between Bitcoin cash trading and the derivatives is indirect and lagged, sometimes by hours or even days. The efficiency of the futures and other derivatives is arguably far greater than trading on-chain in cash Bitcoin. But the fact of ETFs referencing Bitcoin guarantees that the price of the tokens will be very volatile, both up and down, especially given the inefficiency of the cash market for the tokens. 

Michael Green: The Bitcoin Bear Case

Michael Green, Chief Strategist and Portfolio Manager at Simplify Asset Management, spoke about the flaws in Bitcoin in an excellent interview carried by Insightful Investor in January of this year:

“So remember what Bitcoin was. Bitcoin was a peer-to-peer payment mechanism. That's what the white paper introduced. And again, the blockchain is actually just an output from that. It's just the ledger of activity that occurs on the Bitcoin blockchain. Now, it's totally failed as that. It is not a peer-to-peer payment system. It does not work in that context. The speed of transactions are far too low. The costs of transactions are far too high. And in search of a solution set for it, we've now moved to a quote-unquote store of value, digital gold.”

Green notes that if Bitcoin did not work as a payment system, that should be a warning sign, especially now that it has morphed into a speculative asset. But the promoters of Bitcoin then spawned a new narrative, a messianic religion based upon the idea that Bitcoin can help you avoid the eventual collapse of legal tender fiat currencies. But when Wall Street began trading futures and ETFs indirectly based upon Bitcoin, they tied the fate of the tokens to the fiat world. 

Having ETFs trading Bitcoin, Green notes, “actually just reinforces that it's a speculative asset rather than a currency.” Could Bitcoin ever become a currency? Green outlines the problem:

“[I]f Bitcoin were to be declared a reserve asset by a variety of governments of notable size, and they accepted it in exchange for and mandated the acceptance of it in exchange for canceling debt, then it would become a quote-unquote currency. That's really the only mechanism for it because debt contracts are legal contracts. And in order to become a currency, you have to cancel that legal contract. The only framework where that can occur is through state sponsorship.”

But, of course, Bitcoin was supposed to be "money" separate from government, right? More important, governments around the world are not adopting Bitcoin. Even in countries such as tiny El Salvador, which adopted Bitcoin as legal tender, the usage of the tokens is minimal. Instead, gold has surpassed the fiat dollar as the leading reserve asset in the world.

The major nations of the world are running away from fiat dollars and derivatives such as crypto tokens in favor of gold as the reserve asset of choice. Gold is not money, Green notes, but it does provide a credible backing for fiat money issued by nation states. And no matter how hard the promoters of Bitcoin try to enlarge the pool of speculators, the price increases have been minimal over the past five years compared to the first decade of Bitcoin’s existence.  Again, Green:

“The parts that contribute to the future [of Bitcoin] are the points that I would highlight. Are we seeing a dramatic increase in the use of Bitcoin for transactions? No. Are we seeing dramatic improvements in the ability of Bitcoin to be accepted as a currency to cancel debt contracts? No. Are we seeing governments of size and significance accept Bitcoin in lieu of their currency for tax payments? No. So what has actually happened other than the speculative fervor around it and people's desire to sell you something?”

Crypto Margin Calls Loom 

The key negative that Green and other observers point to, and which we have highlighted in past missives in The IRA, is the use of Bitcoin and other tokens as collateral for dollar debt and equity raises. Unlike legal tender dollars, Bitcoin and other tokens are essentially illiquid assets that must be sold for fiat dollars in order to satisfy debt. Many holders of crypto assets that have used debt to buy tokens now face the prospect of forced liquidations into a highly inefficient market that is being driven lower by more efficient ETFs and futures. Cash redemptions just make ETFs sell harder and faster.

Over the last five years, for example, MicroStrategy (MSTR) reportedly has borrowed $7.27 billion via convertible debt securities and doubled its share count to purchase Bitcoin. MicroStrategy stated in Q3 2025 that the average purchase price of its Bitcoin was reportedly $66,384.56 USD with a total cost of $33.139 billion USD. What happens if Bitcoin falls below the average cost for MicroStrategy, which has likely increased since then? Will investors lend the company more fiat dollars to buy more crypto tokens?

Keep in mind that with a forced sale in a liquidating market, the Bitcoin trove of MSTR might be worth a fraction of the average valuation referenced above. Just think about the discount applied to all of the ETFs, perps and SPACs that have been issued to support the price of Bitcoin and other worthless tokens. A poll we conducted on Halloween via X illustrates the range of haircuts. Imagine if we posted this poll today?

Below is an interview we did with CNBC about using crypto currencies as collateral on residential mortgages. The interview is entitled "Could Crypto-Backed Mortgages Put the US Housing Market at Risk?" While there are some fringe firms willing to use crypto holdings as part of the wealth calculation for a loan underwriter, none of the mainstream lenders we contacted were willing to even look at crypto as proof of wealth. After last week’s debacle, we suspect that lenders will rapidly retreat from the crypto world. 

Even as Bitcoin sinks under the weight of its own contradictions, we see the consultants and touts promoting "stable coins," an inane concept that was sufficiently popular to pass both houses of Congress. The embrace of crypto in the Trump Administration is a comparable act of idiocy to the Sherman Silver Purchase Act in 1890, which required the U.S. Treasury to purchase 4.5 million ounces of silver per month and almost bankrupted the nation. The Act was repealed in 1893 and led to the US embracing the gold standard in 1900.

President Donald Trump signed the GENIUS Act into law on July 18, 2025. The act, officially named the Guiding and Establishing National Innovation for U.S. Stablecoins Act, establishes a federal regulatory framework for payment stablecoins. The photo below shows President Trump and the Republican leadership celebrating the great achievement.

If you follow the fascinating discussion with Michael Green that we cite above, a stable coin that is not legal tender for all debts public and private is no more likely to be successful than Bitcoin, either as a universally accepted exchange medium or a speculative whimsy. Some issuers of coins have realized the obvious truth that coins need to have an explicit yield, which of course makes the coin a security regulated by the SEC. Were crypto tokens properly considered to be securities, then the promoters of this moveable fraud could not make the outrageous claims that we see on social media every day.

And as we noted on the first edition of "The Wrap" this Friday, the impact of sponsorship by the Trump Administration on stable coin stocks is waning fast. Again, the fascinating thing about crypto tokens is that they are clearly not correlated to gold but instead seem to be a function of the ebb and flow of the equity markets. Crypto enthusiasts ought to remember that wonderful scene in the 2024 Ali Abassi film "The Apprentice," when Fred Trump bought chips at one of the Trump casinos to support his son's sinking fortunes.

The domestic punters and foreign nationals who buy stable coins from the Trump clan are essentially making a campaign contribution. It is useful to recall that companies associated with Donald Trump's casinos filed for Chapter 11 bankruptcy multiple times. We traded the Trump casino bonds at Bear, Stearns & Co prior to the first default, proof positive that the games created on Wall Street may acquire new names and narratives, but the underlying reality never changes.

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