Author: Pillage Capital; Source: X, @PillageCapital; Compiled by: Shaw, Jinse Finance
Bitcoin has never been the future of currency. It has merely served as a battering ram in the regulatory war. Now, as this war is drawing to a close, the funding that has supported Bitcoin’s development is quietly withdrawing.
For 17 years, we have firmly believed that the magical internet currency represents the ultimate form of finance. This is not the case. Bitcoin is a regulatory battering ram, a tool specifically designed to dismantle certain barriers: the state’s intolerance of digital asset holdings.
This mission has largely been accomplished. Tokenized U.S. equities have begun to be issued. Tokenized gold is both legal and growing. The market capitalization of tokenized U.S. dollars has reached hundreds of billions.
During wartime, a battering ram is invaluable; in times of peace, it becomes an unwieldy and costly antique.
As the financial system upgrades and becomes legitimized, the narrative of Bitcoin as ‘Gold 2.0’ is collapsing, reverting to what we truly desired in the 1990s: tokenized claims on real assets.
I. Bitcoin’s Predecessor: E-gold
To understand why Bitcoin is becoming obsolete, one must comprehend the reasons for its emergence. Its birth was not smooth but rather arose from the shadows of repeated failures of digital currencies.
In 1996, E-gold went online. By the mid-2000s, it had approximately 5 million accounts with transactions reaching tens of billions of dollars. This proved something crucial: the world needed digital assets backed by tangible value. However, the state crushed it.
In December 2005, the FBI raided E-gold’s offices. In July 2008, its founders pleaded guilty. The message was clear: destroying a centralized digital gold currency was effortless. Just knock on one door, seize one server, prosecute one individual, and it was over.
Three months later, in October 2008, Satoshi Nakamoto published the Bitcoin white paper. Prior to this, he had been contemplating these issues for many years. In his writings, he pointed out that the fundamental flaw of traditional currencies and early digital currencies lies in their excessive reliance on trust in central banks and commercial banks. Experiments like E-gold demonstrated how easy it was to attack these points of trust.
Satoshi Nakamoto witnessed firsthand the suppression of a genuine innovation in the field of digital currencies. If you want digital assets to survive, they cannot be easily suppressed.
Bitcoin was designed to eliminate the avenues of attack that led to the collapse of E-gold. It was not aimed at efficiency but at survivability.
II. Regulatory Warfare: The Necessary Illusion
In its early days, introducing users to Bitcoin felt almost like performing magic. We simply told them to download a wallet onto their phones. When the first Bitcoins arrived, you could see the moment of realization dawn on them. It was as if they had opened a financial account and immediately gained value, without requiring any permissions, documents, or regulatory authorities.
It was a wake-up call. The banking system suddenly seemed outdated. You realized for the first time that you had been suppressed all along, without even knowing it.
At the Money 20/20 conference in Las Vegas, a speaker displayed a QR code on the big screen and hosted a live Bitcoin raffle. Participants sent Bitcoin, and the prize pool accumulated in real time. A person next to me from traditional finance leaned over and said that the speaker had just violated about fifteen laws. He might have been right. But no one cared. That was precisely the point.
This was not just a financial issue; it was an act of rebellion. One of the top posts about Bitcoin in its early days on Reddit perfectly encapsulated this sentiment: Buy Bitcoin because ‘it’s a big middle finger to the thieves and robbers who try to steal my hard-earned money.’
This self-funded mechanism was flawless. By fighting for the cause, posting, promoting, debating, and recruiting new users, you directly increased the value of the tokens in your wallet and those of your friends. This revolution benefited you immensely.
Since the network could not be shut down, it continued to grow stronger after each crackdown and negative report. Over time, everyone began acting as if ‘Magic Internet Money’ was the real goal, rather than a temporary solution.
This illusion intensified to the point that mainstream institutions began to align with it. Blackrock applied to launch a Bitcoin ETF. The U.S. President discussed adopting Bitcoin as a reserve asset. Pension funds and universities invested in Bitcoin. Michael Saylor convinced convertible bond buyers and shareholders to fund the purchase of billions of dollars worth of Bitcoin for his company. Mining operations expanded, consuming electricity on par with medium-sized nations.
Ultimately, due to more than half of campaign funding originating from cryptocurrencies, calls for their legalization were finally heard. Ironically, the government’s crackdown on banks and payment processors gave rise to a three-trillion-dollar behemoth, forcing regulatory submission.
III. Road to Success: Profitability Ruined the Deal
Infrastructure upgrades dismantled monopolies
Bitcoin’s advantage has never been solely its censorship resistance but rather its monopolistic position.
For years, if you wanted tokenized stores of value, Bitcoin was the only option. Accounts were shut down, and fintech companies feared regulators. If you wanted the benefits of instant, programmable money, you had to accept Bitcoin’s terms entirely.
So we accepted it. We liked it, we supported it because there was no alternative at the time.
That era is over.
You can observe what happens when multiple viable transaction channels exist by looking at Tether (USDT). Initially issued on Bitcoin’s transaction channels, most of its circulation later shifted to Ethereum due to lower fees and greater usability. When Ethereum’s transaction fees surged, retail investors and emerging markets redirected issuance to Tron. Same dollar, same issuer, different transaction channels.
Stablecoins are not loyal to any particular blockchain. They treat blockchains as disposable channels. The assets and the issuer are the key factors, while the channel is merely a combination of cost, reliability, and connectivity with other parts of the system. In this sense, the ‘blockchain, not Bitcoin’ camp has essentially emerged victorious.
In the early days, horse-drawn carriages were widely referenced as a way to mock banks’ reports on blockchain technology.
Once you understand this, Bitcoin’s situation looks quite different. When there is only one channel, all assets are forced to rely on it, and you might confuse the value of the asset with the value of the channel. But when there are many channels, value flows to those with the lowest costs and the most convenient connectivity.
This is where we stand now. Except for the United States, the majority of the world’s population can now hold tokenized equity stakes in U.S. stocks. Perpetual futures, once the killer application of cryptocurrencies, are being replicated by domestic entities such as the CME Group. Banks have also started offering deposit and withdrawal services for USDT. Coinbase is evolving into a hybrid of a bank and a brokerage account, allowing users to transfer money, write checks, and buy stocks while holding cryptocurrencies. The network effects that once protected Bitcoin’s monopoly are gradually eroding, giving way to universal network infrastructure.
Once the monopoly is broken, Bitcoin will no longer be the sole avenue for generating returns. It will become just one of many products, competing against regulated, high-quality goods and services that better align with people’s original needs.
Technical Reality Check
During wartime, we overlooked a simple fact: Bitcoin is a poor payment system.
We still transfer funds by scanning QR codes and pasting long strings of meaningless characters. There are no standardized usernames. Moving funds across layers or chains is as difficult as navigating an obstacle course. Once you lose track of which address corresponds to which account, your money is gone forever.
“Future Currency”
By 2017, Bitcoin’s transaction fees had soared to nearly $100. A Bitcoin café in Prague had to accept Litecoin to stay operational. When I had dinner in Las Vegas and paid with Bitcoin, it took half an hour because everyone was struggling with their mobile wallets, causing the transaction to get stuck repeatedly.
Even today, wallets frequently encounter basic malfunctions. Balances fail to display, transactions get stuck, and people send money to incorrect addresses, resulting in lost funds. In the early days, almost everyone who received gifted bitcoins ended up losing them. Personally, I have lost over a thousand bitcoins. This is a common occurrence in the cryptocurrency space.
The large-scale application of purely on-chain finance is extremely concerning. People click the ‘sign’ button in their browsers without being able to read or understand the underlying code. Even complex operations like those on Bybit can still be hacked, leading to losses of billions of dollars, with no effective recourse available.
We once convinced ourselves that these user experience issues were temporary growing pains. A decade later, the real improvements in user experience haven’t come from some ingenious protocol but rather from centralized custodial institutions. They provide users with passwords, account recovery options, and fiat on-ramps.
Technically speaking, this is the crux of the issue. Bitcoin has never managed to figure out how to function effectively without recreating the very intermediaries it aimed to replace.
Transactions are no longer worth the risk.
Once infrastructure improvements occur elsewhere, all that remains is trading.
Consider the returns over the past four years (a full cryptocurrency cycle). The Nasdaq index has outperformed Bitcoin. You’ve taken on existential regulatory risks, endured steep declines, suffered constant hacks and exchange collapses, yet your returns are inferior to those of a standard tech index. The risk premium has vanished.
The situation with Ethereum is even worse. What should have been the part that yielded the highest returns for taking risks has now become a direct drag on performance, while the boring indices merely creep upward.
Part of the reason lies in structural issues. There is a large group of early holders whose entire net worth is tied up in cryptocurrencies. Now older, with families, real-world expenses, and a natural desire to reduce risk, they sell some of their coins each month to maintain a comfortable lifestyle. Thousands of holders selling monthly add up to billions in ‘living expense’ sales.
New capital inflows are entirely different. ETF buyers and wealth management firms mostly allocate only 1% or 2% for compliance purposes. Though stable, these funds are not aggressive. These modest allocations must contend with relentless selling by early holders, exchange fees, newly issued coins by miners, scam tokens, and hacking incidents just to keep prices from falling.
The era when taking regulatory risks could yield substantial rewards is long gone.
Developers sense the stagnation.
Developers are not foolish. They can detect signs that technology is losing its edge. Developer activity has plummeted to 2017 levels.
Weekly developer commit records across all ecosystems.
Meanwhile, the codebase has effectively become ossified. Decentralized systems were designed to be difficult to change. Those once-ambitious engineers who viewed cryptocurrency as the cutting edge have now shifted their focus to robotics, aerospace, artificial intelligence, and other fields where they can do more exciting things than merely tinkering with numbers.
If trading conditions are poor, user experience is worse, and talent is draining away, the path forward is not hard to predict.
4. Error-correction mechanisms are superior to pure decentralization.
Proponents of decentralization tell a simple story: code is law, currency is censorship-resistant, and no one can stop or reverse transactions.
Most people don’t actually want that. What they desire is well-functioning infrastructure, with someone available to fix things when issues arise.
This can be seen in how people interact with Tether. When funds are stolen by North Korean hackers, Tether freezes those balances. If someone mistakenly sends a large amount of USDT to a contract address or burn address, as long as they can still sign from the original wallet, complete KYC verification, and pay the fees, Tether will blacklist the frozen tokens and mint new ones to the correct address. While this involves some paperwork and delays, at least there is a process and a management team that acknowledges errors and rectifies them.
This is counterparty risk, but it’s also a type of risk that people value. If you suffer losses due to technical glitches or hacking, there’s at least hope for recovery. The same cannot be said for on-chain Bitcoin. If you input the wrong address or sign an incorrect transaction, the loss will be permanent. No appeals, no customer service, and no second chances.
Our entire legal system is built on the opposite intuition. Courts have appeals processes. Judges can overturn rulings. Governors and presidents can pardon criminals. Bankruptcy laws exist to ensure that a single bad decision doesn’t ruin someone’s life forever. We prefer living in a world where obvious mistakes can be corrected. No one truly wants a systemic vulnerability like the Parity multisig bug, which froze $150 million worth of Polkadot, leaving everyone to shrug helplessly and say, ‘Code is law.’
Our level of trust in issuers today is far higher than it was in the early days. Back then, ‘regulation’ meant crypto-friendly banks losing their accounts because traditional banks feared regulators would revoke their licenses. We watched crypto-friendly banks collapse over a single weekend. Governments felt more like executioners than referees. Now, the same regulatory mechanisms act as safety nets. They enforce disclosure requirements, bring issuers under audit frameworks, and empower politicians and courts to punish blatant theft. Cryptocurrency and political power are now tightly intertwined; regulators can no longer arbitrarily destroy the entire space—they must regulate it. This makes coexisting with risks from issuers and regulators far more rational than living in a world where losing a mnemonic phrase or approving a malicious signature prompt could bankrupt you irreversibly.
No one genuinely desires a completely unregulated financial system. A decade ago, a broken regulatory system made the chaos of unregulated systems seem appealing. But as the regulatory framework has modernized and become more functional, this trade-off has reversed. People’s preferences are clear. They want robust infrastructure, but they also want a referee on the field.
5. From ‘Magic Internet Money’ to Tokenized Real-World Assets
Bitcoin has accomplished its mission. It served as a sledgehammer, breaking down the barriers that had blocked E-gold and all similar attempts. It has made it politically and socially impossible to permanently ban tokenized assets. But this victory carries a paradox: when the system finally agrees to upgrade, the immense value of this sledgehammer disappears.
Cryptocurrencies still have their place, but we no longer need a $3 trillion ‘rebel force.’ Hyperliquid can develop prototype functionalities with just 11 employees and compel regulators to respond. Once a feature performs well in a test environment, traditional finance (TradFi) replicates it with a regulatory-compliant wrapper.
The dominant strategy today is no longer to invest the majority of one’s net worth into ‘magical internet money’ for a decade and hope for appreciation. This approach only makes sense in the event of a financial system collapse with highly favorable return prospects. ‘Magical internet money’ has always been an odd compromise: a flawless financial system encasing assets backed solely by narratives. In subsequent articles, we will explore what happens when these financial systems carry claims on genuinely scarce real-world assets.
Capital is already adapting. Even the unofficial central bank of cryptocurrencies is shifting. Tether’s balance sheet now holds more gold than Bitcoin. Tokenized gold and other real-world assets are growing rapidly.
The era of ‘magical internet money’ is coming to an end. The age of tokenized real assets is beginning. Now that the door has been opened, we can stop worshiping Bitcoin and start focusing on the assets and transactions that truly matter on the other side.
