The Sudden Repricing of Bitcoin's Risk Profile

Gradually, then suddenly.

The answer to this Jeopardy trivia clue has long been, how did you go bankrupt? For several decades, the collective American conscience has come to grips with two realities. The first: life is becoming harder, and I don't know why. The second: we don't know who to blame.

Bitcoin proponents have pointed the finger at the Federal Reserve and fiat money since its creation. But for 16 years, it has been taboo to blame something as niche as the central banking cartel for these two realities over a more fashionable entity, such as the classic "1%" or "capitalism" boogeymen.

At the individual level, the journey to grokking bitcoin can start anywhere. You may already possess a firm idea of what money is, and how gold serves as superior money to fiat given its attributes, yet fall short of grasping bitcoin—falling victim to one of the many dissuading arguments against it: beanie babies, tulips, speculative bubble, etc.

At the market level, the journey to grokking bitcoin is only now reaching the cusp of truly understanding what bitcoin is. Long traded as risk-adjacent, with extremely high beta to the market and tight correlations with tech indices like the Nasdaq-100, bitcoin is, seemingly, only now beginning its journey to becoming the least correlated asset in the world.

These two American realities have accelerated in recent years. It is particularly visible in the choices that young people make. A study from the Population Reference Bureau found that in the U.S., the median age of first-time mothers has risen from 22 in 1970 to 30 in 2020, while our fertility rate reached a historic low of 1.64, well below the replacement rate of 2.1.

The marked decline in births and delay of childrearing into late-early adulthood is symptomatic of our worsening economic realities. This decline in the nuclear family has occurred simultaneously with the rise in financial nihilism, with sports betting, gambling, and meme coins emblematic of a generation so hopeless that they're turning to variations of lottery tickets, praying on chances rather than betting on themselves.

Unfortunately for us, the house has far better odds than we do.

Bitcoin's properties have always allowed for it to be an asset that people want to own in both good times and bad. Only now, with the second Trump administration's overhaul at the SEC, including the repeal of its anti-bitcoin banking ruleset, SAB 121, is the market coming around to the true value of bitcoin.

Thus, the more apt answer to this trivia clue is: how did the market come to understand the true value of bitcoin? Gradually, then suddenly.

And this is where we now find ourselves. After 16 years of gradually, bitcoin's monetization is now entering into the unpredictable and historically incomparable suddenly.

Bitcoin has long been perceived as a high-risk asset, largely because the financial system treated it as one. Strict regulatory oversight, punitive accounting rules, and institutional gatekeeping kept bitcoin at the fringes, reinforcing the idea that it was speculative, volatile, and too immature for mainstream adoption. As a result of its sub-$1T size and cross-asset correlations, that was partly true. That reality is rapidly changing.

The repeal of SAB 121 is the latest domino to fall in bitcoin’s transition to a systemically accepted asset class. For years, this rule acted as a structural deterrent, forcing banks to classify would-be customer bitcoin holdings as a liability, making custody services impractical. That restriction has now been lifted, which eliminates a major counterparty risk and opens the floodgates for banks to integrate bitcoin custody directly.

The biggest financial players in the world now have direct access to bitcoin custody without capital constraints, meaning the perception of bitcoin as a shadow-market asset is fading. This is a fundamental shift—bitcoin is no longer a high-risk outlier. The road has been cleared for it to become a cornerstone of financial infrastructure. For nearly two decades, the financial system fought against bitcoin, and that resistance was a source of risk. The tide is turning. Instead of obstructing it, institutions are now building around bitcoin, legitimizing it in the process.

Bitcoin’s risk profile is being massively reduced—not because the asset has changed, but because the system around it is changing.

The repeal of SAB 121 did more than just open the door for banks to custody bitcoin—it set the stage for bitcoin to become the highest-quality collateral in the financial system. For the first time, banks can integrate bitcoin into their balance sheets without being arbitrarily scrutinized, which means that not only can they hold it, but they can also lend against it.

This is a transformative moment. Historically, the financial system has relied on sovereign debt (primarily U.S. Treasuries) as the foundation of credit markets, with banks, corporations, and institutions using government bonds as the basis for borrowing and lending. The problem? That system is breaking down.

Treasuries have duration risk, inflation risk, and counterparty risk—all of which have been magnified in the past three years. As the U.S. debt spiral accelerates and interest rates remain elevated, the structural flaws in the system are becoming clear. Banks and financial institutions are increasingly looking for alternative forms of pristine collateral—assets that are liquid, scarce, and free from counterparty risk.

Bitcoin is uniquely suited to step into this role.

Since its creation, bitcoin’s properties have made it theoretically the best form of collateral—liquid, instantly verifiable, bearer-owned, and unencumbered by counterparty risk when self-custodied. However, regulatory restrictions prevented banks from fully integrating it into lending markets. That restriction is now gone.

As banks begin utilizing bitcoin as a form of collateral, the impact will be profound.

The quality of loans and credit issuance will improve because bitcoin-backed loans will be secured against an asset that cannot be inflated away, defaulted on, or manipulated through central bank policy. Unlike real estate, which can be overleveraged, or stocks, which are tied to corporate performance, bitcoin is a monetary constant—its value is determined by global liquidity conditions, not individual market forces or auction schedule rejiggering.

This will fundamentally reshape credit markets. The introduction of bitcoin as collateral will:

1. Reduce systemic credit risk. The traditional financial system is plagued by cascading defaults when overleveraged debt fails. Bitcoin eliminates counterparty failure because it is always fully verifiable and liquid. Banks who rehypothecate collateralized bitcoin will fail, and fail quickly.
2. Increase loan quality. Lending against bitcoin means banks will be holding an appreciating, high-quality collateral base instead of assets that degrade over time (fiat, real estate, corporate bonds).
3. Lower interest rates for borrowers. As bitcoin becomes more widely used in collateralized lending, its liquidity will grow, and competition among banks will rise. These two factors will drive borrowing costs down, increasing credit availability while maintaining loan integrity.
4. Improve capital efficiency. Traditional collateral like real estate and corporate bonds require excessive over-collateralization to account for risk. Bitcoin’s instant liquidity and transparent ownership allow for higher loan-to-value ratios while still maintaining credit quality.

As bitcoin-backed lending grows, the entire financial system will become more stable. Banks will no longer be reliant on inflationary debt-based collateral like Treasuries, and credit markets will shift toward a hard asset standard—a system where collateral is verifiably scarce, global, and beyond political interference.

Beyond just financial stability, the impact on the standard of living will be significant. A world where bitcoin is the preferred form of collateral is a world where capital is allocated more efficiently, interest rates are lower, and financial crises become less frequent. This means:

• Better mortgage terms and housing affordability as lending moves away from overleveraged fiat-backed debt.
• More accessible business credit for entrepreneurs, secured against bitcoin instead of relying on traditional banking relationships.
• A financial system that rewards savings rather than punishing it through inflation and debt dilution.

Bitcoin is now stepping into the role of pristine collateral that its monetary properties have always allowed it to. For years, it was sidelined due to regulatory constraints, but the repeal of SAB 121 has unlocked its ability to function as the financial system’s ultimate risk-free asset.

As more institutions realize the benefits of bitcoin-backed lending, the move down the risk curve will accelerate—not just for bitcoin itself, but for participation in the entire financial system that builds on top of it.

Accounting rules have long dictated how corporations perceive risk. For years, bitcoin was subject to indefinite-lived intangible asset treatment, which meant that if the price dropped, the company had to mark down losses—but if the price recovered, those gains could not be marked up. This asymmetry forced CFOs to view bitcoin as an accounting liability rather than a viable treasury asset.

That barrier is now gone. The FASB rule change allows companies to report bitcoin at fair market value, making it a level playing field with other financial assets. The implication is seismic: companies can now treat bitcoin like they treat cash, stocks, and other liquid investments.

This change eliminates one of the primary risk factors that discouraged corporate adoption. It means that companies will no longer be penalized on their financial statements for holding bitcoin, making it far easier for boardrooms to approve allocations.

MicroStrategy was the first major corporation to embrace bitcoin, navigating the old accounting rules while still delivering massive returns to shareholders. Now, with fair value accounting in place, more companies will follow. Bitcoin has gone from an exotic, speculative balance sheet allocation to a rational, risk-managed treasury strategy.

The FASB rule change doesn’t just make bitcoin adoption easier—it makes it the prudent choice. A world where bitcoin is treated as a standard corporate reserve asset is emerging, and with it, another layer of perceived risk is falling away.

Bitcoin ETFs have already transformed the asset’s market structure, bringing in consistent, high-volume institutional demand. Now, BlackRock is seeking to enable in-kind redemptions for its iShares Bitcoin Trust (IBIT), a move that will make the ETF function more like gold and other traditional financial assets.

This change means authorized participants (APs) will be able to redeem ETF shares for actual bitcoin, rather than being forced to transact in cash. In practice, this eliminates unnecessary conversion costs, slippage, and reliance on intermediaries. It also means that large financial institutions will be able to seamlessly acquire and settle bitcoin without ever leaving the ETF ecosystem.

This move is significant because it further erases the frictions that made bitcoin appear risky to institutions. For years, financial players hesitated to engage with bitcoin because of liquidity inefficiencies, regulatory uncertainty, and the inability to seamlessly integrate it into existing structures. In-kind redemptions resolve many of these issues, making bitcoin ETFs a far more efficient gateway for capital inflows.

What this signals is the final stage of bitcoin’s financial integration. Once in-kind redemptions are approved, bitcoin ETFs will be structurally identical to the most established commodity ETFs in the world. The line between bitcoin and traditional financial assets will be erased, taking its risk profile down several notches with it.

For most of its existence, bitcoin was firmly perceived as a high-risk asset on the financial spectrum, considered speculative, volatile, and structurally incompatible with institutional finance. That risk premium is now rapidly vanishing.

SAB 121’s repeal removes institutional custody barriers, making bitcoin safer for banks to hold. The FASB rule change normalizes bitcoin accounting, making it safer for corporations to own. BlackRock’s in-kind redemptions make bitcoin ETFs more efficient, making it safer for institutional investors to buy. Each of these changes erases a layer of perceived risk. Bitcoin hasn’t changed, but the world around it has.

A theoretical risk curve maps asset classes based on counterparty risk, liquidity risk, and perceived volatility. At one end sits US Treasuries, the so-called “risk-free” asset class, with a rating of 1. At the other end are small-cap speculative equities, emerging market currencies, altcoins, junk bonds, and venture capital, rated 9 or 10. Before 2017, bitcoin sat around an 8 or 9 on the risk curve, often lumped in with junk bonds, penny stocks, and other speculative assets that institutions deemed uninvestable. There were no regulated vehicles for institutional exposure, no clear custody frameworks, and no ability for corporations to hold bitcoin without introducing massive accounting distortions. It was a retail-driven phenomenon, traded on offshore exchanges, with extreme price swings reinforcing its perceived instability.

The first major step down the risk curve came in 2017 with the launch of CME bitcoin futures. This gave institutional players a way to gain exposure, but it was still a one-sided trade—predominantly used for shorting and speculation rather than long-term capital allocation. Bitcoin’s volatility remained high, and its regulatory standing was still murky. In 2020, the next major step down occurred with the MicroStrategy playbook—the first public company to aggressively allocate to bitcoin as a treasury reserve asset. The next year, Tesla followed suit, and banks like JPMorgan started offering bitcoin product trading desks. This pushed bitcoin’s risk rating down from a 7 to a 6, but it was still seen as a corporate curiosity rather than a serious institutional asset.

The launch of U.S. spot bitcoin ETFs in January 2024 further legitimized bitcoin, solidifying its place as an investable financial product. However, the biggest structural shift happened overnight on January 23rd, 2025 with the repeal of SAB 121. This single rule had forced banks to classify customer bitcoin holdings as liabilities, effectively preventing them from offering custody services. When it was repealed, bitcoin’s risk profile dropped from a 7 to a 5 immediately. Suddenly, banks were free to integrate bitcoin without punitive balance sheet treatment. The primary institutional argument against bitcoin—"Where would it be custodied?"—was resolved in a single regulatory change.

The shift didn’t stop there. The FASB rule change, which eliminated asymmetric accounting treatment, allowing public companies to report bitcoin at fair market value instead of marking down losses without recognizing gains, further reduced bitcoin’s perceived risk. Now, public companies can hold bitcoin on their balance sheets without introducing unnecessary volatility into their financial statements. This was another significant step down the risk curve, as it made bitcoin far more viable as a corporate treasury reserve asset, removing one of the biggest deterrents for CFOs considering bitcoin exposure.

BlackRock’s push for in-kind redemptions on its iShares Bitcoin Trust is the latest move pushing bitcoin lower on the risk scale. This change, if approved, would make bitcoin ETFs functionally identical to commodity ETFs like those for gold. The introduction of seamless, institutional-grade settlement mechanisms means that capital can flow in and out of bitcoin markets with the same ease as any other major asset. This isn’t just an improvement in market structure—it’s a sign that bitcoin’s risk profile is converging toward gold, sovereign debt, and other core financial assets.

As bitcoin’s risk premium collapses, its divergence from the broader "crypto" market is becoming undeniable. In previous cycles, speculative altcoins outperformed bitcoin during bull markets, as capital rotated into riskier bets. This time, that isn’t happening.

The total crypto market cap has shrunk relative to bitcoin since the FTX collapse. Historically, Ethereum outperformed bitcoin in bull cycles, but that has not happened this cycle. The ETH/BTC ratio has declined nearly 70% since 2021, reflecting a market-wide recognition that bitcoin is no longer in the same category as speculative digital assets.

The distinction is clear: bitcoin is being integrated into traditional finance, while “crypto” remains a speculative frontier. The divergence will only grow as more capital seeks the safest asset in the digital ecosystem. Bitcoin is no longer just a disruptive technology—it is becoming a core financial asset, a base layer for institutional capital, and a fundamental building block of future lending markets.

Looking ahead, bitcoin’s trajectory is clear. The historical risk premium placed on bitcoin is collapsing. It is moving from a perceived high-risk, speculative asset to a monetary base layer for institutions, corporations, and sovereigns. Within the next five years, bitcoin is likely to descend to a 3 on the risk curve, settling alongside gold, major equity indices, and investment-grade bonds.

Bitcoin's gradual shift down on the risk curve is a reflection of the financial system’s willingness to accept it. And right now, that acceptance is accelerating faster than ever.

The monetization of bitcoin is no longer a theoretical debate. The financial system that once fought it is now adapting to it, accelerating its adoption and reducing its risk. For 16 years, bitcoin was the outsider, the volatile asset, the speculative trade. That era is over.

The Great Repricing

For years, the collective American conscience has grappled with two stark realities: life is becoming harder, and no one seems to know who to blame. The fiat system has long operated under a veil of obfuscation, keeping the public unaware of its structural decay while those in power perpetuate the illusion of stability. The decline of purchasing power, the erosion of savings, and the slow-motion collapse of the nuclear family have all been downstream effects of a financial system built on unsustainable debt expansion.

For over a decade, bitcoin’s critics dismissed it as just another symptom of economic irrationality—no different from the speculative mania of beanie babies, tulips, and tech bubbles past. Yet unlike these, bitcoin has endured. It has survived booms and busts, outright government hostility, and coordinated efforts from the most powerful financial institutions in the world to suppress its growth. The assumption was that bitcoin’s volatility and lack of institutional legitimacy would always keep it in the speculative fringe, preventing it from ever being integrated into the global financial system. That assumption is now demonstrably false.

The repeal of SAB 121, the FASB rule change, and BlackRock’s in-kind redemption request all point to one inevitable reality: bitcoin is being structurally reclassified. The asset that was once deemed too volatile, too niche, and too high-risk is now being positioned alongside the safest stores of value in the world. A system that actively worked to suppress bitcoin is now being forced to accommodate it, and in doing so, is legitimizing it as an asset that investors, corporations, and sovereigns cannot afford to ignore.

This is not just a shift in bitcoin’s market structure—it is a shift in its narrative. The financial world is beginning to recognize that bitcoin is not the risk; the risk is staying in a system that requires perpetual credit expansion to function. The sudden decline in bitcoin’s perceived risk is not due to some fundamental change in the asset itself. Rather, it is a recognition that the assets and institutions once deemed “safe” are, in fact, far more fragile than they appear.

This is why the dislocation between bitcoin and the broader "crypto" market is accelerating. In previous cycles, speculative altcoins outperformed bitcoin as capital rotated into riskier bets during bull runs. That dynamic is no longer playing out. Ethereum, once considered bitcoin’s closest competitor, has lost significant ground in market capitalization. Its ecosystem remains plagued by centralization risks, regulatory uncertainty, and untested economic models. Meanwhile, bitcoin is seeing massive capital inflows from institutional investors, sovereign entities, and corporate treasuries. The gap between bitcoin and everything else is no longer just philosophical—it is financial, regulatory, and institutional.

Bitcoin is no longer competing with speculative tech stocks and digital casino tokens. It is competing with gold, sovereign bonds, and ultimately, fiat currencies themselves. This is what the financial system is waking up to. The integration of bitcoin into banking, accounting, and ETF markets is not just a regulatory shift—it is the market’s recognition that bitcoin is the apex asset in a world of counterparty risk.

The phrase “gradually, then suddenly” has long been used to describe financial collapses. But it applies just as much to the monetization of bitcoin. The gradual phase—where bitcoin was dismissed, attacked, and misunderstood—is now in the rearview.

What comes next is the suddenly—the phase where every institutional player, every corporation, every sovereign wealth fund realizes they can no longer afford to sit on the sidelines. The phase where capital flows accelerate, where supply shocks emerge, where the game of accumulating bitcoin before the next entity does becomes a race against time.

This is not just bitcoin’s moment. This is a moment of historical monetary repricing. What was once perceived as the riskiest asset in the financial system is now being embraced and absorbed by it.

The risk is no longer holding bitcoin. The risk is not holding any at all.

Enjoy the acceleration,

Joe Consorti

Theya is the simplest way to take full control of your bitcoin. With our flexible multi-sig vaults, you decide how to secure your keys.

Whether you prefer keeping all keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple devices, it's always Your Keys, Your Bitcoin.

Get started with Theya on the App Store or via our Web App.