Banks quietly add Bitcoin as retail exits

Changpeng Zhao, the former chief executive of Binance, has drawn attention to what he describes as a widening divide in the Bitcoin market, with large United States banks and institutional players accumulating the cryptocurrency while many retail investors sell amid price volatility and regulatory uncertainty. His remarks, circulated widely across market circles, have intensified debate about whether another structural shift is under way in the digital asset ecosystem.

Zhao’s comments come at a time when Bitcoin has shown sharp swings following months of inflows into spot Bitcoin exchange-traded funds approved in the United States earlier in the year. While headline price movements have unsettled individual investors, data from custody providers and regulatory filings indicate that exposure among traditional financial institutions continues to deepen. Several large banks are offering Bitcoin-related services through ETFs, structured notes, and custody arrangements rather than direct balance-sheet purchases, a distinction that has fuelled confusion among retail traders.

Market analysts say the divergence reflects differing time horizons and risk tolerances. Retail investors, many of whom entered the market during previous bull runs, are more sensitive to short-term price drops and negative headlines. By contrast, banks and asset managers tend to accumulate during periods of weakness, viewing Bitcoin as a long-term hedge or portfolio diversifier rather than a speculative trade.

The institutionalisation of Bitcoin has accelerated since the approval of spot ETFs by the US Securities and Exchange Commission, which opened the door for pension funds, insurers, and wealth managers to gain exposure within regulated frameworks. BlackRock, Fidelity, and other major asset managers have disclosed significant inflows into their Bitcoin products, with some filings showing steady additions even during periods of market pullback. These flows suggest that professional investors are using volatility to build positions rather than retreating.

Zhao’s observation also highlights a broader behavioural pattern that has characterised crypto markets for more than a decade. Retail participation often peaks during price rallies and retreats during downturns, while institutions tend to do the opposite. Blockchain analytics firms tracking wallet activity have reported an increase in holdings among large addresses commonly associated with funds and custodians, alongside a decline in balances held by smaller wallets.

Banks themselves have been cautious in public messaging, mindful of regulatory scrutiny and reputational risk. Direct Bitcoin ownership on bank balance sheets remains limited, but indirect exposure through client products has expanded. Major lenders have rolled out Bitcoin-linked investment vehicles, custody services for institutional clients, and trading desks catering to hedge funds and family offices. Executives have framed these moves as responses to client demand rather than proprietary bets, yet the net effect is growing institutional influence over market dynamics.

Retail investors, meanwhile, face a more complex environment than during earlier crypto cycles. Higher interest rates have reduced appetite for speculative assets, while enforcement actions against exchanges and token issuers have reinforced perceptions of regulatory risk. For some individuals, profit-taking after years of gains has coincided with broader cost-of-living pressures, making Bitcoin holdings a source of liquidity rather than long-term investment.

Zhao, who stepped down as Binance’s chief executive after a settlement with US authorities, has continued to comment on market trends despite maintaining a lower public profile. His remarks resonate because of his long-standing role in shaping the global crypto industry and his insight into trading flows across exchanges. Supporters argue that his assessment reflects on-chain data and institutional disclosures, while critics caution that narratives of “smart money” buying and “weak hands” selling can oversimplify a market influenced by multiple macroeconomic forces.

Economists note that Bitcoin’s growing integration into traditional finance is altering its behaviour. Correlations with equities and macro indicators have increased at times, reducing the appeal of Bitcoin as a purely uncorrelated asset. At the same time, fixed supply and halving cycles continue to underpin long-term valuation arguments cited by institutional investors.