Bitcoin (BTC) analyst Willy Woo has sounded the alarm on a big problem that would hinder the longer term development of the world’s main cryptocurrency. In a latest revelation on the social media platform X, Woo highlighted a regarding impediment that would hinder its potential for future development.
Woo’s evaluation centered on the rising dominance of Bitcoin derivatives, also known as “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 progressively 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 at the moment are in a regime of 20-30% extra BTC being traded by way of derivatives than the precise liquid BTC. This counteracts a bullish provide shock.”
This can be a slide from my TOKEN2049 discuss. It’s the ratio of “paper BTC” (mixed futures open worth) that’s traded vs the true 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 doubtlessly weaker worth rallies, because the market is flooded with derivative-based buying and selling reasonably than real transactions.
Woo additional elaborated on the adversarial results of this development, mentioning 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 by way of the futures and derivatives markets.
This inorganic stress, in keeping with Woo, acts as an obstacle to Bitcoin’s natural development and is chargeable for the diminished depth of latest worth rallies when in comparison with Bitcoin’s early days.
Bitcoin approaches the $25K stage. Chart: TradingView.com
Bitcoin Dominance Surges
In a separate report, Bitcoin’s dominance within the cryptocurrency market has surged to its highest stage this yr.
Rising Bitcoin dominance usually imply that traders are favoring Bitcoin over different different cryptocurrencies, or altcoins. This shift in investor sentiment towards Bitcoin could be attributed to numerous components, together with its established status, recognition as a retailer of worth, and perceived decrease danger in comparison with many altcoins.
Supply: iStock
Nonetheless, it’s essential to notice that top Bitcoin dominance can sign a interval of stagnation or decline for altcoins. As traders allocate extra capital to Bitcoin, they could withdraw funds from altcoins, doubtlessly main to cost drops within the different cryptocurrency market.
Woo’s warning in regards to the rising dominance of Bitcoin derivatives serves as a reminder of the challenges going through the cryptocurrency ecosystem. Whereas Bitcoin’s rising dominance displays its continued attraction to traders, 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.
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