Bitcoin (BTC) analyst Willy Woo has sounded the alarm on a big problem that might hinder the longer term development of the world’s main cryptocurrency. In a current revelation on the social media platform X, Woo highlighted a regarding impediment that might hinder its potential for future development.
Woo’s evaluation centered on the rising dominance of Bitcoin derivatives, sometimes called “paper” coin, and its implications for the cryptocurrency’s liquidity and worth stability.
Rise Of Bitcoin Derivatives Threatens Liquidity
According to Woo, this surge in BTC derivatives buying and selling is step by step siphoning liquidity away from the precise cash. He emphasised the ratio between the mixed futures open worth of derivatives and the extremely liquid actual crypto that’s actively traded.
Woo expressed his concern, writing, “We are now in a regime of 20-30% more BTC being traded through derivatives than the actual liquid BTC. This counteracts a bullish supply shock.”
This is a slide from my TOKEN2049 discuss. It’s the ratio of “paper BTC” (mixed futures open worth) that’s traded vs the actual BTC that’s extremely liquid and traded. We at the moment are in a regime of 20-30% extra BTC being traded. This counteracts a bullish provide shock. pic.twitter.com/fnCHPFXAfC
— Willy Woo (@woonomic) September 20, 2023
In essence, the proliferation of BTC derivatives permits for elevated worth manipulation and probably weaker worth rallies, because the market is flooded with derivative-based buying and selling somewhat than real transactions.
Woo additional elaborated on the hostile results of this pattern, declaring that the abundance and accessibility of US {dollars} (USD) in comparison with Bitcoin make it potential for bigger gamers to exert inorganic promote stress on Bitcoin via the futures and derivatives markets.
This inorganic stress, in line with Woo, acts as an obstacle to Bitcoin’s natural development and is answerable for the diminished depth of current worth rallies when in comparison with Bitcoin’s early days.
Bitcoin approaches the $25K degree. Chart: TradingView.com
Bitcoin Dominance Surges
In a separate report, Bitcoin’s dominance within the cryptocurrency market has surged to its highest degree this 12 months.
Rising Bitcoin dominance usually imply that buyers are favoring Bitcoin over different various cryptocurrencies, or altcoins. This shift in investor sentiment towards Bitcoin could be attributed to numerous components, together with its established fame, recognition as a retailer of worth, and perceived decrease danger in comparison with many altcoins.
Source: iStock
However, it’s essential to notice that top Bitcoin dominance can sign a interval of stagnation or decline for altcoins. As buyers allocate extra capital to Bitcoin, they might withdraw funds from altcoins, probably main to cost drops within the various cryptocurrency market.
Woo’s warning concerning the rising dominance of Bitcoin derivatives serves as a reminder of the challenges going through the cryptocurrency ecosystem. While Bitcoin’s rising dominance displays its continued attraction to buyers, it additionally underscores the necessity for a balanced and sustainable cryptocurrency market that fosters innovation whereas sustaining the integrity and stability of the unique cryptocurrency, Bitcoin.
Featured picture from
