Bitcoin, News & Updates

Bitcoin’s ‘long-term’ signal – What you could be ignoring

Bitcoin’s (BTC) market capitalization is hitting $1 trillion, corresponded with a surge in price on the charts. In the stated case, the last of the market volatility and network momentum pushed the price higher before the drop that followed. 

Yet, if we look at cryptoverse’s most prominent token as an asset to be used as collateral, there is a broader scope for the vertical growth of its market capitalization.

Arcane Research’s latest report looked at the journey from $1 trillion to $20 trillion, a figure that is the global market value for collateral. While government bonds and cash-based securities dominate this $20 trillion market, a widening gap creates systemic risk in the system.

This makes it feasible for Bitcoin to bridge the gap and make the collateral system largely risk-free and stable, unlike the observed fragility. 

Quid pro quo and credit risk are presently the top two challenges in the collateral system, and Bitcoin could emerge as the ideal solution in such a case.

Source: Arcane Research

As mentioned in the report above, it can be considered that around 6,25,000 BTCs are being used as collateral in the crypto-market. At their current price, that would be worth approximately $30 billion. 

Nevertheless, right now, Bitcoin accounts for just 0.15% of the total collateral market. With the same figures expected to rise, the same is likely to impact the long-term price positively.

In recent times, whenever Open Interest on derivatives exchanges has hit a peak, it has coincided with times of high volatility and hikes in Bitcoin’s price, with corrections following soon after. An over-leveraged market is closer to a price correction based on past instances in previous cycles.

Source: Arcane Research

The attached chart, for instance, highlights the OI in Bitcoin Futures corresponding to March 2020’s Black Thursday and the recent ATH of $58,330. Since derivatives markets were the ones first to introduce Bitcoin as collateral, a hike in OI in Bitcoin Futures signals there may be an increase in the amount of Bitcoin being used as collateral, and eventually, the price of the asset, in the long-term.

Now, this metric may not influence the price in the short-term as much as other metrics like trade volume, exchange reserves, and the SOPR. In the long-term, however, leveraged futures may lead to a hike in BTC’s price.

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