Bitcoin Price Formation Debate: Institutional Buyers vs Paper Bitcoin

Adam Back, the CEO of Blockstream, has rejected claims that "paper Bitcoin" dominates trading activity. He argues that large buyers physically hold their Bitcoin assets through custodians, making it impractical to hide massive synthetic positions. Back bases his view on observed institutional behavior, noting that billions in blocked buy orders between $100,000-$110,000 indicate physical accumulation rather than synthetic trading.

Lawrence Lepard, an investment manager, presents opposing evidence. He cites $30 billion in perpetual futures contracts tracked globally, suggesting that these derivatives influence prices without blockchain settlement. Lepard monitors this data routinely, identifying rapid growth in synthetic Bitcoin exposure. He attributes observed price pressure specifically to these paper instruments, arguing that they are not hidden and significantly impact the market.

The term "paper Bitcoin" describes Bitcoin derivatives like futures contracts or synthetic assets. These instruments provide price exposure without actual Bitcoin ownership. Critics suggest that excessive paper Bitcoin may suppress spot prices despite institutional demand. Back asserts that large institutional buyers are taking delivery of their Bitcoin, while Lepard counters that the volume of perpetual futures contracts indicates a significant amount of paper Bitcoin in the market.

This divergence highlights uncertainty about Bitcoin’s price formation. Synthetic instruments could potentially mute genuine demand signals if oversupplied. Alternatively, other factors may explain current price levels absent paper Bitcoin dominance. Market traders currently lack consensus on which view reflects reality. Blockchain verification mechanisms do not track off-exchange derivatives activity, creating opacity.

The discussion persists as Bitcoin trades near key thresholds. Resolution requires clearer derivatives reporting or on-chain evidence contradicting either position. Both parties agree, however, that retail investors often leave coins on exchanges—a separate risk factor from institutional custody practices.