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Bitcoin: Futures market shows affinity for stablecoin collateral

2min Read

The percentage of crypto-margined Bitcoin futures contracts fell from 70% during the historic 2021 bull market, to just 23% as of 10 August.

Bitcoin: Futures market shows affinity for stablecoin collateral

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  • There was a decisive shift in favor of stablecoin-margined BTC contracts.
  • Owing to BTC’s recent losses, short position traders swung into action.

Bitcoin’s [BTC] futures market has exhibited rapid growth over the years, making it one of the most preferred crypto derivatives instruments among institutional investors. Futures data is frequently used to forecast future BTC price movements and gain a better understanding of market sentiment.

Read Bitcoin’s [BTC] Price Prediction 2023-24

Prominent on-chain analyst Will Clemente took to social platform Twitter to highlight a rather fascinating trend emerging in the BTC futures landscape. Using Glassnode’s data, the researcher drew attention to the steady decline in the number of crypto-collateralized open BTC futures contracts over the last two years.

Source: Glassnode

As evident in the graph, the percentage of crypto-margined contracts fell from 70% during the peak of the historic 2021 bull market, to just 23% as of 10 August. The major takeaway from these findings was a decisive shift in favor of stablecoin-margined contracts.

How does it matter?

It’s basic knowledge that futures contracts allow traders to speculate on Bitcoin price movements without holding the asset. Traders in the futures market generally have two types of crypto derivatives at their disposal – crypto-collateralized and stablecoin-collateralized contracts.

Crypto-collateralized or coin-margined contracts are advantageous for long-term investors since they are settled in the underlying cryptocurrency, in this case Bitcoin. This means that they can continue to HODL without having to convert their assets into stablecoins.

On the other hand, stablecoin-margined contracts are settled in stablecoins like Tether [USDT]. They are mostly put to use by short-term traders as they offer a buffer against wild market swings.

As a result, the push to secure leverages using stablecoin collateral suggested a lower likelihood of liquidation cascades. Liquidation cascades happen when a sudden bullish or bearish event leads to forced liquidation of positions, and the cascading effect plunges the entire market.

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Bearish sentiments kick in

Bitcoin pulled back to $29,417 at press time, after climbing to $30,000 on 9 August, data from CoinMarketCap showed. The decline profoundly influenced the strategies of traders in the futures market.

According to Coinglass, traders looking to profit from price losses outpaced those gunning from bullish price moves. The Longs/Shorts Ratio tilted in favor of bearish leveraged traders.

Source: Coinglass


Aniket Verma works as a journalist at AMBCrypto. Contrary to most who are primarily interested in merely tracking price movements of cryptos, his focus is on examining the niche intersection between cryptocurrencies and traditional finance. A so-so Bitcoin maximalist, Aniket has a strong disdain for memecoins and the unfounded frenzy they seem to generate every market season. Coming from a strong engineering background, Aniket previously worked as a Content Manager for TV9 Network. Before his stint over there, he was an Associate Multimedia News Producer at Reuters.
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