This is fascinating because I've never known a venue to 'designate itself'.

Of course the venue doesn't designate itself; bad choice of words.

Someone has to do the 'designating'.

Yes - it's the organisers who do the designation.

Perhaps designation works like Transubstantiation: The words are spoken by authorized persons and the bread-and-wine of coffee-house-amateur-music is transformed into Folk Music.

I believe the process to be as occult as the one you describe, but, alas, it's something I've never really been privy to. Something weird does happen though; like sitting in the club room of a pub on a non-Folk Club night.   

My first response to this was to conclude that you are off your rocker.

Very possibly.

But then I realized that I really have no idea what you mean.

Ditto.

Traditional Ballads at an open mike aren't folk music because Open Mike is not a Designated Folk Context?

Traditional Balladry isn't automatically Folk Music any more than a fish crate is automatically flotsam. As I've said elsewhere a Traditional Ballad might be sung in any musical genre context without injury to its integrity. The International Folk Music Council got rid of Folk from their name owing the term being essentially meaningless, changing their name the International Council for Traditional Music instead. So when I do a Traditional Ballad at an Open Mike Night, I'm doing Traditional Balladry, not Folk.
   
Well, suppose you designated it as such before performing (a sort of blessing) . . . then would Traditional Ballads be Folk Music? What if I stood outside and pronounced the blessing whilst you sang? Would that be close enough?

Whilst the process is occult, I don't think you can change the nature of a musical context mid-way through the proceedings. If you announced to an audience of non-folkies that they were now in folk club, the effects, I fear, would be catastrophic. There would be fatalities.

Because if death metal is folk music but traditional ballads aren't, then I'm afraid your newly-minted redefinition is already in need of some serious revision.

Both Death Metal and Traditional Music can be Folk, though it's perhaps less likely with the former (although there is a thread about Folk Metal going on around here). I'm trying to stick to the facts here - the evidence of what happens in the Name of Folk, so hypotheticals don't really help, despite my own stated personal feelings on the matter which you might be getting confused with.