According to the findings of a joint Arcane Research and Bitstamp study, bitcoins unique characteristics, which include it being “the most portable asset”, are the likely contributing factors behind the increasing use of the crypto as a collateral asset.
Bitcoin Unmatched
This is evidenced by the studys data which shows that approximately “420,000 bitcoins were used as collateral in various loans in the lending markets in Q4 of 2020.” This figure is nearly double the 213,000 bitcoins that were used as collateral in Q4 of 2019.
In another boost to the case as the best collateral asset, the study findings suggest when compared to traditional assets like “government bonds and cash-based securities,” the leading crypto asset is unrivaled. For instance, the findings assert that only bitcoin (BTC) “is an asset without both counterparty risk and credit risk.” Additionally, BTC is “available for trading 24/7, 365 days a year, all over the world.”
In touting the superiority of some of these characteristics, the Arcane Research and Bitstamp study states:
Bitcoin can be transferred around the world, instantly, at almost no cost, any time of the day, and any day of the year, and with full finality. No other assets can match these properties today, making bitcoin the perfect collateral asset for the future.
Bitcoin Share of Collateral Market Still Negligible
Meanwhile, despite the crypto assets immense potential, the study findings suggest that BTC only accounts for a minuscule of the $20 trillion collateral market today. To illustrate this fact, the researchers from Arcane Research estimates that “around 625,000 BTC are used as collateral in the crypto market today, or approximately $30 billion.”
According to the researchers, this number is based on “estimations of collateral held in the derivatives market, in relation to bitcoin collateralized lending and tokenized BTC in decentralized finance (defi).” When compared to the total collateral market, this number suggests that “bitcoin collateral only accounts for 0.15% of the total collateral market today.”
Nevertheless, the study still asserts that BTCs share of this market is growing rapidly and that the potential for a trillion-dollar market remains.
