Bitcoin futures are financial derivatives, usually contracts to buy or sell Bitcoin at a certain price on a specific date. These give businesses a way to speculate on the long-term value of Bitcoin. The term “open curiosity” refers to all outstanding futures contracts that haven’t yet been settled. Futures contracts may be collateralized in a number of ways, including by using the contract’s native currency (BTC or ETH), USD, or USD-pegged stablecoins.
Understanding market dynamics requires keeping an eye on the differences in open curiosity between futures with crypto-margin and those with cash margin. The risk of liquidation will rise when Bitcoin futures contracts are secured by Bitcoin. When a market sharply declines while an investor is long Bitcoin and using Bitcoin as collateral, both the net lack of the position and the value of the collateral decline. The location is more vulnerable to being liquidated or stopped out as a result of these two losses.
To put it another way, using Bitcoin to support a long position on Bitcoin increases the risks. If the value of Bitcoin declines, the risk is amplified since not only does the value of the location decline, but also the value of the collateral lowers.
However, using USD or stablecoins as collateral for futures contracts might significantly reduce the risk of massive leverage cascades during market downturns. When a secure asset is used as collateral, the value of the collateral remains constant regardless of changes in the market value of the underlying asset. This stability acts as a buffer against abrupt market movements and lowers the likelihood of forced liquidations.
According to data from Glassnode, the percentage of open interest in futures that is margined in the contract’s native currency (such as BTC and ETH) is currently at 28.8%. On July 3, this indicator fell to an all-time low of 21.8%.