- There was a decisive shift in favor of BTC contracts with a stable coin margin.
- Due to BTC’s recent losses, traders in short positions sprang into action.
Bitcoins [BTC] The futures market has shown rapid growth over the years, making it one of the most preferred crypto derivative instruments among institutional investors. Futures data is often used to predict future BTC price movements and gain a better understanding of market sentiment.
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Prominent on-chain analyst Will Clemente took to the social platform Twitter to highlight a rather fascinating trend emerging in the BTC futures landscape. Using data from Glassnode, the researcher drew attention to the steady decline in the number of cryptocurrency-backed open BTC futures contracts over the past two years.
Source: Glassnode
As the chart shows, the percentage of contracts with crypto margins fell from 70% during the peak of the 2021 historic bull market to just 23% on August 10. The main conclusion from these findings was a decisive shift in favor of contracts with a stable currency margin.
How does it matter?
It is a basic knowledge that traders with futures contracts can speculate on Bitcoin price movements without holding the asset. Futures traders generally have two types of crypto derivatives available to them: crypto-collateralized and stablecoin-collateralized contracts.
Cryptocollateralized or coin-margined contracts are beneficial to long-term investors because they are settled in the underlying cryptocurrency, in this case Bitcoin. This means they can move on to HODL without having to convert their assets into stablecoins.
On the other hand, stablecoin margin contracts are settled in stablecoins like Tether [USDT]. They are mostly used by short term traders as they provide a buffer against wild market swings.
As a result, the pressure to secure leverage using stablecoin collateral suggested a lower likelihood of liquidation cascades. Liquidation cascades occur when a sudden bullish or bearish event leads to forced liquidation of positions, and the cascade effect collapses the entire market.
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Bearish sentiments strike
Bitcoin retreated to $29,417 at time of writing, after rising to $30,000 on Aug. 9, data from CoinMarketCap showed. The drop had a major impact on traders’ strategies in the futures market.
According to Coinglass, traders looking to profit from price losses outperformed those looking for bullish price moves. The Longs/Shors Ratio tilted in favor of bearish leveraged traders.
Source: Coinglass