Crypto’s Big Problem? Your ETF Can’t Buy Bitcoin!

A venture capitalist David Martin has known since 2015 recently called him with an unusual question. The man on the other end had been primarily investing in the Ethereum ecosystem since Martin first met him, a software developer who fell in love with Ethereum and its applications and had never worked in finance. Imagine that-someone who thinks “decentralized finance” is a romantic ideal, not a complicated web of code and confusion.

He wanted to know whether he could convert his ETH into an ETF, then use that position on margin to buy crypto-related equities. Because nothing says “financial sophistication” like trading Bitcoin for a piece of paper that’s just as volatile, but slightly more regulated. Martin, clearly a man of few surprises, was “shocked” (read: mildly amused) by this request. He told BeInCrypto in an exclusive interview at Liquidity Summit 2026 in Hong Kong that this guy’s obsession with ETFs is “the staple of what’s going on right now.” Spoiler: it’s not a staple. It’s a crutch.

It is also, in a single anecdote, the clearest illustration of the problem Martin has spent his first weeks at Clear Street trying to solve. The infrastructure that was supposed to bridge these two worlds does not yet exist in any complete form. And the people who need it most are already moving faster than the systems built to support them. Like a toddler in a candy store, but with more spreadsheets.

The Revenue Signal That Actually Matters

ETF inflows make headlines. But Martin, who recently joined Clear Street as Chief Revenue Officer for Digital Asset, argues that revenue patterns tell a more precise story about where institutional conviction is actually sitting. Because nothing says “institutional” like a 30% stake in a TradFi equities fund. Martin’s point? The real money isn’t in the ETFs-it’s in the “regulated wrappers” that let institutions pretend they’re not playing with fire. But hey, at least they’re wearing a helmet.

Over the past year, crypto-related activity has increasingly migrated into regulated wrappers. Exchange-traded funds, digital asset treasuries, and publicly listed crypto companies are generating a growing share of institutional flow. Options tied to BlackRock’s IBIT reached nearly $38 billion in open interest, surpassing Deribit’s $32 billion, a venue that had dominated Bitcoin derivatives since its founding in 2016. IBIT only launched options trading in November 2024, making its rapid ascent all the more striking. Because nothing says “market dominance” like a 2024 launch date.

Martin checked the figures the morning of this interview. The gap had widened further. By January 2026, IBIT accounted for 52% of total Bitcoin options open interest, an all-time high level of market share, while Deribit’s dominance had slipped below 39% from more than 90% five years ago. Because nothing says “relevance” like a 50% market share, even if it’s only been around for a year. Martin’s takeaway? “You’re seeing a fundamental shift to regulated products that traditional institutions are accessing. I think that speaks volumes for what people have been building in the crypto space over the past few years.” Translation: “We’re finally getting a seat at the table, but it’s a very small table.”

“You’re seeing a fundamental shift to regulated products that traditional institutions are accessing. I think that speaks volumes for what people have been building in the crypto space over the past few years.”

What it also reveals, underneath the inflow numbers, is a friction point that has not been solved. Because nothing says “friction” like trying to use your Coinbase stock as collateral for a Bitcoin trade. Martin’s solution? A unified system that lets you move between asset classes without liquidating your life savings. But until then, it’s just another day in the world of “innovative” finance.

Where Capital Efficiency Breaks Down

Participation has widened. But capital remains segmented across spot markets, equities, and derivatives, with no unified system to move between them efficiently. Martin is precise about where this concentrates. “There’s no real pure play place in the market today that can take your Coinbase stock as collateral to buy crypto derivatives or Bitcoin.” Because nothing says “pure play” like a system that can’t even handle a basic transaction. For portfolio managers now operating across both asset classes simultaneously, that is not an abstract limitation. It is a constraint they hit on a daily basis. Like a toddler who can’t figure out how to tie their shoes, but with way more money.

The shift happened faster than the infrastructure supporting it. Crypto-native funds that once held only digital assets now routinely carry a third or more of their portfolios in TradFi-related equities. Those positions sit in separate systems, managed by different brokers, with no mechanism for cross-collateralization. A manager who wants to use an equity position to fund a derivatives trade in crypto has to liquidate first, taking on execution risk and tax consequences that a unified system would eliminate. Because nothing says “efficiency” like a tax bill that’s bigger than your investment.

Martin sees two paths toward closing this gap. Firms like Clear Street are building from the traditional side, creating the rails that allow capital to move fluidly between asset classes within a single institutional framework. The parallel path runs through blockchain-native tokenization, bringing traditional assets on-chain so that collateral and settlement can happen within a unified system without the friction of moving between siloed infrastructure. Because nothing says “future” like a system that’s still in beta.

“The end state is that crypto just becomes another asset class, and you should be able to intermediate it with other asset classes.”

That convergence is already visible in portfolio construction, as crypto-native managers increasingly rely on traditional brokerage infrastructure while retaining digital asset exposure. The gap between where portfolios are and where the supporting infrastructure is has become one of the defining operational tensions in institutional crypto right now. Because nothing says “operational tension” like a portfolio that’s 30% TradFi and 70% crypto, but no way to combine them.

The Competitive Fear Driving Allocation Decisions

That call reflects something Martin has been hearing consistently since joining Clear Street. Across the larger crypto asset managers he has spoken with, the pattern holds. A year ago, almost none of them held anything in TradFi assets. Today, the most institutional-grade among them have at least 25% to 30% of their portfolio in TradFi-related stocks. Because nothing says “institutional” like a 30% stake in a stock that’s probably going to crash.

Martin acknowledges that competitive dynamics are also at play, not just opportunity. When the point was raised in conversation, he agreed without hesitation. As more managers move into traditional wrappers, staying out begins to look like a strategic disadvantage rather than a principled position. Remaining on the sidelines when enough of your peers have moved carries its own risk. Because nothing says “strategic” like copying your competitors, even if it’s a bad idea.

The implication for anyone building infrastructure in this space is significant. Portfolio managers are constructing positions the market was not designed to support at this scale. The infrastructure has to catch up, or it becomes a meaningful drag on returns. Because nothing says “drag” like a system that’s still using dial-up internet for transactions.

The Regulatory Wall Blocking Institutional DeFi

Capital efficiency is one bottleneck. Regulatory ambiguity around decentralized finance is another, and Martin argues it may be the more consequential constraint in the near term. There is genuine opportunity in DeFi, whether for yield generation, for trading, or for accessing the kind of financial innovation that has historically pushed crypto forward. But for many institutional players, that market remains structurally inaccessible. The same compliance frameworks that make ETF exposure manageable make participation in unregulated DeFi untenable, regardless of the potential returns. Because nothing says “compliance” like a system that’s too chaotic to understand.

Martin points to the Clarity Act, the ongoing legislative effort in the United States to establish clearer definitions around digital assets and their regulatory treatment, as a critical variable. A positive resolution would not simply reduce legal uncertainty. It would open access to an entire segment of the market that larger institutions are currently unable to touch. Because nothing says “clarity” like a law that’s still in progress.

Martin adds:

“The TradFi folks are cut off in certain segments of the market, which means they’re missing opportunity. And as a portfolio manager, you want to be able to access anything at any time.”

Until that clarity arrives, the bifurcation persists. Crypto-native participants continue operating in DeFi while traditional institutions remain on the sidelines, and both sides leave returns on the table. Because nothing says “returns” like a market that’s too divided to capitalize on itself.

The Underreported Shift: On-Chain Asset Managers

When pressed on what infrastructure development is receiving less attention than it deserves, Martin moves past the capital efficiency conversation to something less discussed: the emergence of fully on-chain asset managers. The RWA narrative is well covered. Tokenized money market funds from BlackRock and Fidelity have mainstreamed the concept. Apollo’s tokenized credit fund extended it into alternatives. But Martin believes the more significant implication is what these foundations make possible next: asset managers who operate natively within permissioned DeFi environments, with KYC-gated access that satisfies institutional compliance requirements while capturing the efficiency gains that decentralized infrastructure provides. Because nothing says “efficiency” like a system that’s still figuring out how to function.

These are not traditional funds that have tokenized their underlying holdings. They represent a different operational model entirely, one where the administrative layers of portfolio management can be compressed, and where the boundary between on-chain and off-chain infrastructure begins to dissolve in practice rather than in theory. Because nothing says “dissolving boundaries” like a system that’s still learning to walk.

“I think it’s one of the coolest things addressing a key use case in a very different way,” Martin says. Because nothing says “cool” like a system that’s still in beta and has no idea what it’s doing.

What the Next Year Actually Looks Like

Asked to summarize where the institutional digital asset market is heading in a single phrase, Martin does not qualify his answer. “Capital efficiency rules the world.” Because nothing says “rules the world” like a system that’s still figuring out how to work.

The institutions and counterparties that figure out how to allow capital to move across asset classes without friction – and how to close the gap between what portfolio managers need and what the infrastructure currently provides – will, in his view, define the next phase of this market. Because nothing says “define the next phase” like a system that’s still in the planning stages.

Whether that gap is bridged by traditional financial intermediaries, blockchain-native platforms, or a combination of both will determine how quickly institutional capital can operate at its natural pace inside an asset class that has historically moved faster than the systems built to support it. Because nothing says “natural pace” like a system that’s stuck in the 1990s.

The DeFi developer who wants an ETF is not a curiosity. He is a leading indicator. And the market that serves him does not fully exist yet. Because nothing says “leading indicator” like a market that’s still in the early stages of figuring itself out.

2026-03-02 16:20