Bitcoin collateralized loans skyrocket but regulation poses a threat


  • Bitcoin is growing as collateral for backing loans in the $20 trillion lending markets.
  • BTC used to back loans soared by 213,000 to 420,000 in 12 months.
  • Governments are likely to intensify regulations for Bitcoin while environmentally focused funds shun it.
  • Bitcoin is nurturing a technical breakout after testing support at $43,000 during the weekend session.

Bitcoin has been in existence for more than a decade and has grown remarkably both as an asset used as a store value and a currency. A recent report by Arcane Research revealed that over 420,000 BTC is currently used as collateral for digital-backed loans.

On the other hand, another paper by BCA Research Inc. outlines that governments across the words are likely to create bottlenecks for the pioneer cryptocurrency, leading to loss of value with time.

Bitcoin used as collateral doubles in a year

Arcane Research, a platform focused on providing data-driven analysis and research to the cryptocurrency space, says that Bitcoin is coming up as a worthy collateral asset based on the combination of its unique features.

The bellwether cryptocurrency comes with no counterparty and credit risks, unlike the traditional assets such as government bonds and cash-based securities. Bitcoin is also "available for trading 24/7, 365 days a year, all over the world," in addition to its portability and divisibility features.

Currently, about 420,000 BTC is used as collateral to back various loans within the digital lending markets. Notably, this figure grew by 213,000 BTC from the fourth quarter of 2019 to the Q4 of 2020. Moreover, Bitcoin is used to collateralize over half of the lending markets' loans, but some industry experts argue the precise estimation is 70% to 80%.

Active Bitcoin collateral in the lending markets

Active Bitcoin collateral in the lending markets

Strict government regulations could jeopardize Bitcoin value in the future

According to a BCA Research Inc report, governments are likely to tighten regulations for the pioneer cryptocurrency, a move that could negatively impact Bitcoin's future value.

The research firm reckons that Bitcoin is already disadvantaged due to the high cost and slow transaction, making it "unsuitable as a medium of exchange." Besides, it may lose the backing of environmentally focused, social, and governance funds because of its high energy consumption during mining. BCA Research argues that governments will bring up obstacles due to "the difference between the face value of money and the cost to produce it." Simultaneously:

Many companies have cozied up to Bitcoin to associate themselves with the digital currency's technological mystique.

 As ESG funds start to flee Bitcoin, its price will begin a downward spiral. Stay away.

Bitcoin nurtures a breakout

The 4-hour chart illustrates the formation of a falling wedge. A breakout from this technical pattern usually has a bullish impulse. Bitcoin rebounded from the weekend support at $43,000 and extended the up leg above $46,000.

The falling wedge signifies a dying bearish momentum amid a growing bulls' grip. If the breakout is confirmed, BTC will lift off toward $50,000. Similarly, the Moving Average Convergence Divergence (MACD) has a bullish bias. Bitcoin's uptrend is supported by the MACD line (blue) crossing above the signal line.

BTC/USD 4-hour chart

BTC/USD 4-hour chart

 On the other hand, it is worth mentioning that Bitcoin is likely to face intense resistance at $47,000, which could invalidate the upswing. At the same time, declines will come into the picture if Bitcoin fails to hold above $46,000. On the downside, losses could stretch to $40,000 if the 200 Simple Moving Average (SMA) support on the 4-hour chart is shattered.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Cryptos feed

Latest Crypto News


Latest Crypto News & Analysis

Editors’ Picks

Shiba Inu price looks south towards $0.0000060 as technicals favor SHIB bears

Amidst an underlying downbeat mood across the crypto market, Shiba Inu extends the bearish momentum into the third straight day on Sunday. The tide is seen turning in favor of SHIB bears once again, as well depicted by Shiba Inu’s daily technical graph, with the market licking its wounds from the China-led blow. Upside remains elusive with 61.8% Fib offering strong resistance.

More Shiba Inu news

Cardano price eyes a drop towards $1.85

Cardano price is once again on the slippery slope this Sunday, kicking off a new week on the wrong footing, as ADA bulls lack follow-through recovery momentum. ADA sellers target 100-DMA at $1.85 on a firm break below $2.

More Cardano News

Ethereum bears contemplate a drop to $2450

ETH price is building up downside pressure while clinging to the 200-SMA support. RSI remains flat below the midline, keeping the sellers cheerful. A drop towards $2450 remains in the offing if the 200-SMA caves in.

More Ethereum News

Polkadot price at make-or-break point as DOT awaits a range breakout

Polkadot price spots a potential symmetric triangle pattern on the 1D chart. RSI stands neutral at 50.00, suggesting a lack of clear directional bias. 21-DMA offers immediate resistance, 50-DMA guards the downside.

More Polkadot News

BEST CRYPTO BROKERS/EXCHANGES



Bitcoin Weekly Forecast: Markets revert to mean, but BTC price remains indecisive

Bitcoin price shows considerable strength after springing from the recent crashes. Still, it is uncertain whether the current bullish impulse will morph into a new uptrend or lead to a more profound decline.

Read the weekly forecast

BTC

ETH

XRP