Bitcoin whales turn to Wall Street: Over $3 billion flows back into the traditional financial system through ETFs

According to the latest media reports, large Bitcoin holders are transferring wealth from the blockchain to Wall Street balance sheets. The new generation of ETFs provides a way for cryptocurrency billionaires to incorporate digital assets into the regulated financial system—without selling, and through funds operated by large asset management companies like BlackRock.

A regulatory change this summer opened the door for this trend, allowing large investors to trade Bitcoin for ETF shares through "physical exchanges." This trading method has been widely used in most ETFs but was only approved for Bitcoin products in July of this year.

This process is typically tax-neutral, does not involve cash transactions, and is not recorded as a sale. The result is the conversion of volatile digital assets into an item on brokerage account statements—making it easier to borrow against as collateral, pledge, or pass on to heirs.

Robbie Mitchnick, head of digital assets at BlackRock, revealed that the company has facilitated over $3 billion in such conversion transactions. Bitwise Asset Management stated that it now receives inquiries from investors daily about transferring holdings to wealth management platforms. Liquidity provider Galaxy has processed several conversion transactions.

From Rebellion to Return: Bitcoin Embraces the Traditional Financial System

This is the latest transformation of the world's largest cryptocurrency. Bitcoin was born as a decentralized rebellion against mainstream financial institutions, but it is now quietly being absorbed by these entities. Its anti-establishment holders are gradually realizing that certain aspects of finance are more accessible through traditional systems.

By converting Bitcoin into ETF shares, investors can maintain the same exposure to cryptocurrency while transforming it into a form recognized by the financial system.

Within brokerage accounts, these holdings can be pledged as collateral, borrowed against, or included in estate planning—operations that are cumbersome and risky, if not impossible, in private digital wallets. The ETF packaging provides legitimacy and convenience, transforming wealth that was once outside the system into assets that banks and advisors can handle.

Bitwise President Teddy Fusaro noted that holding assets within the traditional financial system still has its advantages, as the company completed its first physical exchange transaction through its BITB ETF in August of this year.

Wealth Management Service Upgrades Drive Conversion Demand

Fusaro illustrated the practical benefits of conversion: an investor has a $1 million portfolio on a wealth management platform and additionally holds $5 million in Bitcoin in a hardware wallet. "Your wealth management platform treats you as a $1 million client," Fusaro said, "If you transfer the $5 million in Bitcoin into a Bitcoin ETF and hold it on the wealth management platform, you can receive a higher level of service."

Mitchnick stated that large Bitcoin holders are realizing the convenience of "being able to hold exposure within existing financial advisor or private banking relationships," which is one of the important reasons for the conversion. He refused to disclose the exact number of transactions handled by BlackRock's IBIT ETF but stated that further regulatory clarity will expand trading volume and the participation of large banks. He revealed that client inquiries range from those wishing to convert 20% of their Bitcoin into ETF form to a complete shift to traditional finance.

"A portion of people choose to convert 100%, saying 'integrating all assets this way is the simplest way for me to hold in the future,'" he said.

Wall Street's Role Deepening

More Wall Street institutions may soon take advantage of these physical exchange transactions. BlackRock stated that banks have played a limited role in facilitating these transactions—especially in the ETF creation phase—despite the fact that currently only non-bank brokerage firms can handle complete transactions.

Wes Gray, CEO and founder of ETF firm Alpha Architect, which specializes in tax strategies, said, "It's easier to live in traditional finance—we've spent a century perfecting integration, access, and security. Bitcoin holders are finally realizing this. Of course, the biggest irony is that Bitcoin was born to escape traditional finance—and now its largest holders are trying to return."

BlackRock noted that with further regulatory clarity, more investors and financial institutions are expected to participate in such conversion transactions, driving Bitcoin deeper into the mainstream financial system