Paper Bitcoin: Do Derivatives Threaten Fixed Supply?

Why Have Bitcoin Prices Been, Relatively, Stagnant of Late?

In 2025, Bitcoin prices have been rather stagnant, relative to expectations, marking a seemingly different regime from the boom and bust phase alternating with the overall rise of the digital currency.

While it is always difficult to put an exact cause behind the price movement of financial assets, many are questioning if “paper Bitcoins” are not responsible for this change in behavior of the leading cryptocurrency.

Since its inception, the concept of a quasi-supply of Bitcoins that are not genuine but still absorb demand has been controversial within the cryptocurrency community.

Some see it as an inevitable evolution of Bitcoin and a sign of the maturation of the currency.

Others view it as an aberration and perversion of the original ideals behind Bitcoin and cryptocurrencies in general, which may even spell doom for the entire project.

As often, there is a little bit of truth on both sides.

Paper Bitcoin Overview

What Is Paper Bitcoin?

Over a decade, Bitcoin has undergone a radical transformation: from a market driven by tech and crypto enthusiasts, with a deep understanding of the technology, to a much broader level of adoption by the general public.

More importantly, it has moved from being mocked and ignored to being treated seriously by many financial institutions.

As a result, we have seen in the past few years the introduction of many new financial instruments, with derivatives like Bitcoin ETFs (Exchange Traded Funds), future contracts, perpetual swaps, options, etc.

This has made Bitcoin investment more complex.

It has also created a massive supply of such “paper Bitcoins”, with the purchase, sale, and speculative activity increasingly moving toward these derivatives, instead of the actual digital asset itself.

Types Of Paper Bitcoin

Swipe to scroll →

Spot Bitcoin ETFs

These ETFs are directly holding Bitcoins in their assets, and provide a way for people to indirectly “own” Bitcoin, without having to understand any of the underlying technology, like crypto exchanges or crypto wallets.

One of the main advantages of Bitcoin ETFs is that they give institutional investors a way to invest in Bitcoin that is more in line with the legal requirements they have to comply with, as ETFs are regulated securities.

Bitcoin Futures

A cryptocurrency futures contract is the same as other types of futures contracts on other types of financial assets.

It is a derivative that obligates a buyer and seller to exchange a specific crypto asset at an agreed-upon price on a predetermined future date.

These contracts, used by both institutional and individual investors, generally enable leveraged trading. They are used by traders to profit from anticipated price movements or hedge against market risks.

Settlement typically occurs in a designated currency, often a fiat currency such as USD.

Bitcoin Futures ETFs

These ETFs do not hold Bitcoin, but Bitcoin futures contracts instead. This makes it a financial instrument even more removed from the actual Bitcoin than the futures themselves.

When people talk about “paper Bitcoin”, this is usually the kind of case they are thinking of, with the investment being made in a derivative of a derivative.

Some Bitcoin Future ETFs are even leveraged, meaning that a person could, for example, gain exposure to twice as many Bitcoin futures contracts with their capital versus a standard Bitcoin Futures ETF.

Bitcoin Options

A cryptocurrency option is the same as other types of options on other types of financial assets.

It is a derivative that grants the buyer the right (but importantly, not the obligation) to buy or sell (put and call options) a crypto asset at a specified price on or before a future date.

US options are exercisable any time before expiration, European options are exercisable only at expiration of the option.

In exchange for this right, the option buyer pays the option seller a premium price.

While contributing to price liquidity, this type of derivative product ultimately led to fewer Bitcoin exchanges than direct sales.

Echoes Of Gold

Funnily enough, this situation is not without precedent.

The existence of a massive amount of “paper gold” is something that gold enthusiasts have bemoaned for decades, criticizing the gold market structure as structurally designed to suppress gold prices.

And there is a good argument for it, as the amount of “gold” being traded daily (paper gold) often exceeds by several orders of magnitude the real gold physically present in secure vaults.

“Quietly, the size of the “paper” gold market had grown to monstrous proportions – successfully creating a tsunami of paper gold flow.

Over 173,713,000 ounces or 5,400 tons of “paper gold” per day turns over, more than 2 years’ annual physical production.”

Source: Intelligent Partnership

Such an imbalance means that speculators have complete control over gold markets, determining the price a lot more than people using it for its initial purpose: protection against counterparty risks or against fiat currency devaluation. And these risks are also what Bitcoin and other cryptocurrencies are looking to protect against.

This market structure is also going contrary to the intended purpose of investing in gold for most gold proponents, which is to protect from counterparty risks. By using derivatives, speculators are going back to square one.

“The LBMA explains that credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.”

Source: Intelligent Partnership

Does Paper Bitcoin Affect Bitcoin Prices?

How Asset Pricing Works

Often, investors imagine that markets are collectively estimating the price of something by judging its “value”. And this is mostly true in the long run, as long as markets are free from interference and manipulation.

But in the short term, prices are much more determined by the capital flows in and out of a given stock, currency, or any other financial asset.

This means that if the cash and capital that were previously flowing into a specific asset now go somewhere else, this can significantly affect the price discovery process.

So yes, derivatives can definitely redirect capital flow that would have been Bitcoin purchases away.

Now the question is whether the capital outflow toward derivatives is large enough to have an actual impact.

Judging Paper Bitcoin Effect

Since July 2025, open interest in derivatives has climbed by roughly 50,000 BTC across exchanges. This represents a capital “outflow” for the Bitcoin market, where the money goes toward a derivative speculative instrument instead of the currency itself.

Of course, this is not that straightforward, as some of these derivative instruments will have to buy Bitcoin according to their definition, like for example, Spot Bitcoin ETFs actually having to own Bitcoins. But Bitcoin Futures ETFs and other derivatives like futures do not.

In addition, more than 450,000 BTC have moved from long-term wallets into the hands of newer, short-term market participants since July 2025.

However, this is not all negative news either. In the same interval, 200,000 Bitcoins were accumulated by ETFs and treasury companies, representing a new source of demand, in a market previously mostly driven by the purchases of retail investors and a handful of billionaires and pioneering companies like Strategy (MSTR -5.16%) and Tesla (TSLA +0.8%) (follow the links for a detailed report on each company).

Overall, this would indicate that a few hundred thousand Bitcoins that might have otherwise been bought directly saw the capital inflow redirected to derivatives.

At a dollar value of approximately $23B, this is likely partially responsible for the sideways price action of the past months.

Will Paper Bitcoin Undermine Bitcoin’s Core Value?

While they might temporarily impact the price discovery of Bitcoin, derivatives are, for now, not seemingly a serious threat to Bitcoin prices in the long run.

This is because we are very, very far from the situation of gold markets, where derivative-using speculators have almost complete control over prices, due to the extraordinary size of the gold derivative products compared to the underlying assets.

This is much less likely to ever happen to Bitcoin, as Bitcoin transactions have nowhere near as much friction in transactions involving the underlying assets as gold.

There is no need to transport physical metal bars or coins between secure vaults, no need for certifications or remelting, no cross-border tariffs, inspection, or taxes, etc, all problems making any direct dealing with gold physical items unappealing compared to “paper trade”.

Bitcoin value is built on the foundation of a fixed supply that is impossible to ever alter, making it an even “harder” currency than gold, previously considered the closest form of “perfect money” possible.

In theory, an onslaught of derivatives creating an infinite amount of “paper Bitcoin” could undermine this foundation.

In practice, this is very unlikely due to the ease of direct Bitcoin ownership compared to gold. And even if it were to start to happen, this would immediately damage Bitcoin’s value proposition, creating a price crash. Such a crash would reduce the attractiveness of Bitcoin speculation, immediately reducing the appeal of these derivatives, making it a self-solving problem.

Latest Bitcoin (BTC) News and Developments

Conclusion

The growing popularity of “true” paper Bitcoin derivatives like futures and options might have siphoned off some of the most speculative money in Bitcoin markets, away from direct purchases.

As a result of this indirectly reduced speculative activity, it seems that a period of quieter price action should be expected, partially vindicating the critics of this evolution of Bitcoin markets.

However, it is far from the potential catastrophe some are claiming paper Bitcoins could become. Contrary to gold, paper Bitcoin is far from taking control over the cryptocurrency market. And contrary to gold, the inherent ease of transaction of Bitcoin reduces the attractiveness of the most damaging derivatives.

So it is true that some derivatives like Spot Bitcoin ETFs might become even more popular over time, especially as institutional investors start to casually allocate a fragment of their portfolio to Bitcoin, the way they usually do with cash or even gold.

But this type of derivative creates new demand for Bitcoins, no less.

So overall, paper Bitcoin’s impact on prices is most likely a short to medium-term effect, and might just be remembered as a bump on the road on the way to mainstream acceptance and utilization of Bitcoin by financial institutions and large corporations.