Bitcoin revival as collateral for cryptocurrencies

Bitcoin Revival as Collateral for Cryptocurrencies

Analysts see a new trend arising for Bitcoin, maybe leading to its revival. It seems like the top crypto will be able to take on a new role as collateral for margin derivatives. They see that this could greatly boost the applicability of the crypto leader. It is mostly in the futures market that this development is taking place. It could help some learn how to sell Bitcoin or buy it. However, the unfortunate side of this is that the coin would likely remain volatile and may get even more so.

Boosts in these new contracts could mean a chain reaction leading to volatility in the coin due to liquidity injections. When multiple liquidations occur at once, this can cause very big price shifts. This also includes liquidity from sudden forced closures on these deals.

Furthermore, drops in Bitcoin’s price can cause further price drops. This is because investors will likely have to close their future contracts sooner because of the declining value of their margin. So, the cycle will continue. Even if you make the right trade calls, sudden irrational market shifts could ruin your position.

Contracts with crypto coins for their margins also have their quotes in US dollars. So, the crypto trader would profit less during a rally, even in a Bitcoin recovery, and lose even more with a market drop.

Bitcoin Recovery and Crypto Market Volatility

The share of Bitcoin futures using Bitcoin itself as a margin has been rising since July. It is now up to 33% from an earlier 20%. The rest of these still remain mainstream forex currencies or stablecoins.

Even if we see a Bitcoin revival, analysts now worry about an increase in volatility in the crypto market. We had seen these sorts of cases occurring prior to September 2021. Such contracts were similarly popular then, making up 50% of the world’s open interest.

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