The Case For Bitcoin As The Future Of Collateral In A Nutshell
Arcane Research, in collaboration with Bitcoin trading platform Bitstamp, presented a paper today laying out the case for BTC as the future of collateral in the financial industry.
The roughly 70-page analysis delves into the numerous causes behind this, as well as their predictions for the future. Before diving deeper into the study to discover more, here’s a quick summary.
Cryptocurrency’s Various Use Cases
In many respects, Bitcoin, like the internet, is a blank canvas. It’s the technology that developers can build on, and designers can use and use in a number of ways.
Revolutionary technologies like this don’t come around very frequently, and when they do, it’s not necessarily evident how they integrate into ordinary life. Even when clear use cases exist, as time passes and users of the technology discover new applications, new uses develop.
When Bitcoin was initially introduced, it was marketed as the first cryptographically secure digital currency. Since its inception, the asset has evolved into a valuable store of wealth, a speculative trading asset, and a fascinating digital currency that has the potential to disrupt many aspects of finance.
It’s difficult to predict where it’ll go next, and it might take many different shapes. Some believe Bitcoin will become the global reserve asset, whereas Arcane Research believes Bitcoin will dominate the collateral market, and here’s why.
Bitcoin is “ideal” as a global collateral asset.
Because of the asset’s potential and almost limitless use cases, it is possibly the most historically significant speculative asset. As a result, it trades with high volatility, making it particularly appealing to derivatives traders. And it’s there that a fresh use case has sprung up out of nowhere.
According to Arcane, the derivatives market has effectively bootstrapped Bitcoin’s usage as collateral due to its digital mobility, serving as a proof of concept for additional collateral instances.
However, the paper goes on to proclaim Bitcoin the “ideal” collateral asset for reasons other than mobility. Other grounds for this assertion include the asset’s inability to be confiscated, which eliminates counterparty risk, and the fact that it trades internationally, 24/7, across all boundaries.
Wrapped BTC is also increasing Bitcoin’s use as collateral in DeFi applications. By 2023, the total use of Bitcoin in all collateral applications, from DeFi to derivatives and beyond, is expected to reach 1,000,000 BTC.
The collateral market is presently worth $20 trillion and is ready for Bitcoin to get into it. While not everyone predicted this use case, it is one that the asset might fulfill, and one that would benefit both investors and the ecosystem.