Bitcoin (BTC) has long been referred to as ‘digital gold’ with the prospect of becoming a store of value. However, the digital coin has not lived to its said expectations to the shiny metal but one exchange is aiming to change this with the launch of Bitcoin priced futures tracking the price of Tether Gold (XAUT).
BTSE cryptocurrency exchange announced the launch of future contracts of Tether Gold (XAUT) priced in BTC rather than the dollar or Tether (USDT). This raises the questions of volatility and the possible forced liquidations of these contracts in case of wild price swings.
However, a statement from the company assures traders that the contract is bound to be less volatile than the dollar, as Gold and BTC price enjoy a positive correlation to each other.
The ‘safe haven race’
According to one of the spokesperson at BTSE Exchange, the new derivative products will allow the traders bet between Bitcoin and Gold as their preferred safe haven asset. The BTC-priced perpetual contract tracks the value of one Tether Gold (XAUT) token, which in turn tracks the value of one ounce of gold.
This is a first-of-its-kind product allowing traders to directly bet on whether the demand and value of BTC competes favorably with its physical gold counterpart as a store of value.
However, the volatility of both assets relative to the dollar is a reason to be cautious on trading this particular asset.
How risky are the XAUT/BTC futures contracts?
Perpetual contracts always run the risk of forced liquidations, especially on margin trades if the price variates too much, leaving the holder of the contract at a loss. In the past few months the Bitcoin derivative traders have witnessed millions of dollars’ worth of contracts liquidated as the price of BTC swung wildly between $10,000 and $3,500 in 2020.
Gold uncharacteristically also witnessed wild price swings in the first half of 2020 as COVID-19 pandemic affected a class of assets. Such wild swings may set the XAUT/BTC futures contract on a high liquidation ratio that may well keep most traders from it. However, the BTSE spokesperson said,
“If the two assets are positively correlated, then the price volatility of this new instrument is, by right, even lower than Gold/USD.”
The price of gold and BTC however does not show a strong positive correlation since the March “Black Thursday crash” when both SoV assets fell and rose dramatically in a week.
BTSE Exchange is quickening its steps to introduce new products on its platform, recently adding Turkish stablecoin, Bilira, to help the struggling economy.