Corporate Bitcoin Holdings Raise Systemic Risk Concerns

As Bitcoin's appeal as a treasury asset continues to grow, concerns have been raised about the potential systemic risks associated with the concentration of corporate Bitcoin holdings in a few custodians. Jameson Lopp, co-founder and Chief Security Officer of Casa, has highlighted that while the narrative of Bitcoin as a corporate treasury asset is gaining traction, the reliance on a handful of trusted third-party custodians could pose significant risks.

Lopp emphasized that the narrative of Bitcoin as a corporate treasury asset could be problematic if it is not accompanied by the concept of self-custody, which ensures sovereignty over the assets. He warned that funneling funds into a few custodians could increase systemic risk, as these custodians become single points of failure in a network designed for distributed control.

This is not the first time Lopp has expressed concerns about custody. Earlier this week, he questioned the role of third-party custodians in response to Pierre Rochard's announcement of the Bitcoin Bond Company. The firm plans to invest up to $1 trillion in Bitcoin by 2046, relying on institutional custodians to manage these holdings. Rochard, however, believes there are already several reliable institutional custodians available for such purposes.

According to Bitcoin Treasuries data, public and private companies currently hold 1,019,136 BTC in their treasuries. This amount represents 32.3% of the 3,150,000 BTC controlled by large entities and 5.13% of the total 19,849,381 BTC in circulation. The expanding role of custodians in managing institutional Bitcoin positions mirrors patterns observed in traditional finance, where institutions rely on licensed custodians to meet internal governance requirements and regulatory compliance.

Michael Saylor, executive president of a prominent Bitcoin holding company, highlighted the benefits of using institutional custodians in October 2024. He noted that the risk of government seizure of Bitcoins is lower when held with institutional custodians, as they adhere to legal and tax obligations. Saylor's company holds over 528,000 BTC in its treasury, divided between custodians such as Fidelity, Anchorage Digital, and Coinbase Prime. These services are also used by other high-profile entities interacting with Bitcoin, such as BlackRock, which relies on Coinbase and recently added Anchorage.

While the use of institutional custodians may streamline treasury management, it creates single points of failure in a network built for distributed control, such as Bitcoin. However, the solution might not be as simple as self-custody. Sangmin Seo, chairman of Kaia, highlighted that while the lack of self-custody introduces risks, "sovereignty without usability creates friction." He concluded that infrastructure builders need to solve both issues, or they are simply rebranding old models.