The central issue is Price Discovery.
Many still believe Bitcoin’s price is determined on-chain, based on its fixed supply of 21 million coins. That framework depended on one critical assumption: that Bitcoin’s scarcity directly constrained tradable supply.
That assumption once held.
It no longer does.
Today, price is set by the marginal buyer, not by total supply, and the marginal buyer now operates overwhelmingly in derivatives markets, not in spot, on-chain transactions.
Once supply can be synthetically expanded at the margin, scarcity ceases to be the primary determinant of price. The asset begins to trade as a derivatives-led market, rather than as a pure supply-and-demand commodity.
This structural shift is precisely what has occurred in Bitcoin.
Yet, this is not a failure of Bitcoin. It is a sign of financial maturation. The same transition occurred in gold, silver, oil, and eventually equities, where derivatives volumes came to dwarf physical settlement.
To remain profitable, you must recognise that Bitcoin is no longer trading under its original market structure.
The Broken Assumptions
Bitcoin’s original valuation framework rested on two core premises
1. A finite supply capped at 21 million coins
2. An inability to be rehypothecated at scale
Those premises weakened once layered financial instruments became dominant, including
● Cash-settled futures
● Perpetual swaps
● Options
● ETFs
● Prime broker lending
● Wrapped Bitcoin
● Total return swaps
From that point onward, on-chain scarcity stopped determining the marginal price.
Bitcoin did not lose its hard cap. What it lost was scarcity at the margin.
The Key Metric Synthetic Float Ratio (SFR)
This shift is best explained through a single concept Synthetic Float Ratio (SFR).
When total synthetic claims on Bitcoin exceed the freely tradable spot float, price discovery migrates away from spot markets and into leveraged derivatives.
At that stage, Bitcoin begins to trade like every other fully financialised asset.
Why Institutions Can Trade Against Bitcoin
At this point, Bitcoin struggles to attract incremental long-term institutional capital, not because institutions reject Bitcoin, but because they no longer need to own it.
Why buy and hold the asset when exposure can be manufactured synthetically?
This enables the standard derivatives-market playbook:
1. Expand synthetic exposure
2. Short into rallies
3. Force liquidations
4. Cover at lower prices
5. Repeat
Institutions are not creating Bitcoin though, they are creating claims on Bitcoin. A single BTC can simultaneously support:
● An ETF unit
● A futures contract
● A perpetual swap
● An options delta
● A broker loan
● A structured note
That is multiple claims on the same underlying asset.
The Conclusion
This is no longer pure price discovery.
It is a fractional-reserve pricing system, where derivatives not physical scarcity determine the marginal price.
Bitcoin has not failed. But it is no longer the market that many people believe they are trading in.
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