Futures Contracts on Bitcoin Experience a Steep Decline: What Does This Mean?

• The Bitcoin futures market has experienced rapid growth, making it one of the most preferred crypto derivative instruments among institutional investors.
• It has been revealed that crypto-collateralized open BTC futures contracts have steadily decreased over the past two years.
• The percentage of crypto-collateralized contracts has dropped from 70% at the peak of the 2021 bull market to only 23% as of August 10th.

Open positions in Bitcoin futures contracts have been steadily decreasing for the past 2 years; What does this data mean?

Crypto-Collateralized Contracts Decreasing in Bitcoin

The Bitcoin futures market has experienced 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 better understand market sentiment.

Leading on-chain analyst Will Clemente highlighted an interesting trend in the BTC futures field. Using Glassnode’s data, the researcher pointed out that crypto-collateralized open BTC futures contracts have steadily decreased over the past two years.

As clearly seen in the graph, the percentage of crypto-collateralized contracts has dropped from 70% at the peak of the 2021 bull market to only 23% as of August 10th. The key conclusion drawn from these findings is a definite shift in favor of stablecoin-margin contracts.

The fundamental purpose of futures contracts is to allow investors to speculate on Bitcoin price movements without holding the asset. Investors in the futures market generally have two types of crypto derivatives – crypto-collateralized and stablecoin-collateralized contracts.

Crypto-collateralized or coin-collateralized contracts are advantageous for long-term investors as they are settled in the underlying cryptocurrency, in this case Bitcoin. This means they can continue to HODL without converting their assets into stable cryptocurrencies.

On the other hand, stablecoin-collateralized contracts are settled in stablecoins like Tether (USDT). These are typically used by short-term investors as they provide a buffer against wild market fluctuations.

As a result, the effort to provide stablecoin-margin leverage has revealed a lower likelihood of liquidation cascades. Liquidation cascades occur when a sudden rise or fall event leads to the forced liquidation of positions and the cascading effect spreads throughout the market.

Bear market sentiments come into play

According to data, Bitcoin reached $30,000 on August 9th but dropped to $29,419 at the time of writing. This decline has deeply affected the strategies of investors in the futures market.

According to Coinglass, investors aiming to profit from price losses have surpassed those trying to profit from bull market movements. The Long/Short Ratio has tilted in favor of bear market leveraged investors.