RootstockLabs sees bitcoin lending as next driver of institutional demand

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Highlights

Only 1.5% of Bitcoin supply participates in lending and Bitcoin-native finance, despite institutional investors collectively holding about 3.9 million BTC.
RootstockLabs projects that if institutional BTC holdings doubled to 7.8 million and 5% earned a 5% annual yield, institutions could generate 19,500 BTC per year in returns.
RootstockLabs highlights risks such as rehypothecation, leverage, and custody concentration—particularly as spot Bitcoin ETFs expand—despite citing benefits like transparent collateral and programmable liquidations.

Financial utility case for bitcoin holdings

As reported by Cointelegraph, citing RootstockLabs, only about 1.5% of Bitcoin supply currently participates in lending and Bitcoin-native finance, while identifiable institutional investors hold roughly 3.9 million BTC. The report says putting more of those holdings to work could create additional demand for the asset by increasing its financial utility rather than by changing supply dynamics.

The analysis highlights two main uses now emerging in the market, generating returns from existing Bitcoin through lending and structured credit, and pairing Bitcoin with fiat-denominated liabilities to improve balance-sheet efficiency. RootstockLabs says both developments could encourage institutions to acquire and retain more BTC.

The report also lays out a hypothetical scenario in which institutional Bitcoin holdings double to 7.8 million BTC. If 5% of those holdings earn a 5% annual yield, institutions would generate 19,500 BTC a year, although the report presents that figure as a potential return on existing positions, not as a forecast for new demand.

Drawing a comparison with gold, the report argues that successful monetary assets tend to develop additional demand sources beyond their original store-of-value role. In RootstockLabs' view, Bitcoin's next layer of utility is likely to come through financial markets rather than through physical applications.

Adoption benefits come with custody and leverage risks

Asked about the risks tied to Bitcoin's growing financialization, Tony DiCarlo, director of institutional propositions at RootstockLabs and author of the report, says the trend carries real concerns, including fractional reserves, rehypothecation and excess leverage. He argues, however, that Bitcoin's design mitigates some of those risks because collateral is verifiable on-chain, liquidation rules are programmable and the collateral supply cannot be diluted.

DiCarlo says borrower defaults, custody failures and legal enforceability remain important issues, while Bitcoin's price volatility adds to leverage risk. Even so, he contends that the benefits could outweigh those concerns, citing MARA's $750 million in Bitcoin-backed loans used to help finance a planned power plant acquisition in Ohio while allowing the company to retain its Bitcoin holdings.

He also warns that institutional adoption could concentrate large amounts of Bitcoin with a small group of custodians, especially as spot Bitcoin exchange-traded funds expand. In his view, that creates a structural tension because ETF shareholders hold fund shares rather than coins directly, potentially leaving most of the underlying Bitcoin in the hands of a few large custodians.

Despite that concern, DiCarlo maintains that Bitcoin's decentralized structure remains a core advantage for modern finance. He says direct asset control and a reduced need for intermediaries could lower counterparty risks and fees for financial services built around Bitcoin.

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