Just because institutions have taken interest in Bitcoin, and "bitcoin banks" may arise, it does not change the source code. Issuance remains the same, and decentralisation is up to game theoretic assumptions that play out irrespective of state adoption. Certainly nation-states could coerce certain miners to obey their OFAC SDN lists, or even themselves mine bitcoin (e.g. Iran, Bhutan). But again, Bitcoin remains global, and there is always a miner willing to include your "potentially censored" transaction for a premium.

Now. They have created IOUs and ETFs and easy ways for people to buy Bitcoin without allowing to withdraw (e.g. Robinhood), but that is merely a path-dependent phenomenon. That is, such institutions "appropriate", or assimilate, Bitcoin to their pre-existing structures. It is no surprise that they do not follow cypherpunk manifesto but their own institutional paradigm and business logic of profit-seeking. Such is capitalism.

And such institutional adoption is fine and dandy for this brings much desired legitimacy, usability, awareness, acceptance, and understanding of Bitcoin (in the long run). Certainly it brings their compliance-industry complex to it, but only within their respective domain; that is, such things existed prior to the inception of Bitcoin. Why would it change?

Certainly such "bitcoin banks" and institutions follow and do what they do best, i.e. are dishonest and take advantage of people where possible, e.g. BlockFi, Celsius). This is a human aspect, not a bitcoin aspect. I expect this to continue.

As such, learning curve takes a steep and costly one for some, who leave it to such entities. Either such an entity does not have proof of reserves, or they disallow withdrawal as a reaction to a political circumstance, or by default (e.g. Robinhood). In such a scenario, "Backfire" effect occurs; people will want to withdraw their assets either way.

Then, if impossible, they change providers and maybe even self-custody. It is a process. Some people might still rely on reliable third-party services, some community-custody (e.g. Fedimint; second-party custody) services and others self-custody. This is all to say that such institutional adoption is a good thing for those who genuinely are better with those options. Seriously.

So is Bitcoin neutered? No. But the biggest threat to Bitcoin is not 51% attack but a lack of understanding and education of Bitcoin to the extent it enables ordinary people to handle their money safely. But the necessity that people have for Bitcoin will force people to use alternative channels acquiring it, i.e. in the most "extreme" cases: decentralised marketplaces that exchange the real thing and not IOUs.

Necessity could be sudden backslide of democratic countries into authoritarianism who disable withdrawals, or even freeze and confiscate their bitcoin. Exchanges may even lose the assets on their own mishaps. The history is full of these events; it is merely a matter of time as such.

Necessity could be the need to send money abroad but existing and future regulations prohibit this because of classification of a high-risk third-country (e.g. currently, from outside EU to anywhere in the world, especially Africa, Middle East...).

People need alternatives and they learn. Doing this, they learn to take all their assets to another place. Or sell existing ones, and buy new ones off Bisq or similar.

That said, no: ETFs do not neuter bitcoin but make just another channel for people to participate in the the price action, which make other people attend to it more. Awareness of Bitcoin brings awareness of the "establishment" a la status quo. This brings people to learn and use better practises for future, i.e. self-custody and not ETFs. And again, this is just a multitude of pathways for people to learn about Bitcoin. As I see it, the existing institutions may fail the person who needs Bitcoin out of necessity. The one who didn't need it, like an investor, then I guess they were already financially and otherwise privileged enough from the get-go.