Rootstock Report Predicts Bitcoin Lending Will Drive Next Institutional Demand Wave

TL;DR

• RootstockLabs argues that lending and yield-generating products could create a new source of institutional demand for Bitcoin.
• Currently, only 1.5% of BTC’s supply is used in lending and Bitcoin-native financial services. Institutional investors hold approximately 3.9 million BTC.
• Rootstock warns about the risks of leverage, defaults, and custody, while highlighting the advantages of using Bitcoin as verifiable on-chain collateral.

RootstockLabs published a report identifying lending, yield generation, and Bitcoin-backed financing as potential drivers of the next wave of institutional demand.

The company argues that financial institutions could increase their BTC holdings if they find new ways to put them to work without having to sell them.

According to its estimates, just 1.5% of Bitcoin’s supply currently participates in lending and Bitcoin-native financial services. Meanwhile, identifiable institutional investors hold approximately 3.9 million BTC.

Rootstock identifies two main applications: generating returns through lending and structured credit products, and using Bitcoin as collateral to finance business operations. Both would allow institutions to put their existing holdings to work while maintaining exposure to the asset.

Rootstock Examines the Potential of Bitcoin Lending

The report presents a hypothetical scenario in which institutional holdings double to 7.8 million BTC.

If 5% of those holdings generated an annual yield of 5%, institutions would collectively earn 19,500 BTC per year. Rootstock clarifies that this figure represents potential returns on existing assets, not a forecast of new demand.

The company compares this development to gold, which expanded beyond its monetary role into jewelry and electronics. In Bitcoin’s case, it believes financial applications could broaden its use beyond a store of value.

Tony DiCarlo, Director of Institutional Propositions at RootstockLabs and author of the report, cited MARA, which secured $750 million in Bitcoin-backed loans to help finance the planned acquisition of a power plant in Ohio.

The arrangement allows the company to retain its BTC while using it as collateral to secure financing for infrastructure.

The Risks of Institutional Bitcoin Financing

DiCarlo acknowledged that greater financial use of Bitcoin could also introduce risks associated with fractional reserves, rehypothecation, and excessive leverage.

Other concerns include potential borrower defaults, custody failures, and price volatility.

However, the executive emphasized that collateral can be verified directly on the blockchain, liquidation rules can be programmed, and BTC’s supply cannot be arbitrarily expanded.

He also warned that institutional growth could leave large amounts of Bitcoin under the control of a small number of custodians. Spot ETFs provide exposure to the asset, but their investors own shares in the funds rather than the coins themselves.

DiCarlo argued that Bitcoin’s decentralized architecture allows holders to retain control of their private keys and access financial services with fewer intermediaries, potentially reducing costs and counterparty risks.