A 15.17% rally week, still 51.49% below the high, tests a BTC collateral trigger
Should the lender tighten the margin it requires on BTC-backed loans after this volatility, or loosen terms on the strength of the week's 15.17% gain?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 30 March 2020, BTC rose 15.17% to close 6,772.78, with a 22.88% range, 76.5% annualised realised volatility, and a 90th-percentile weekly return over 111 weeks of history. It closed 51.49% below its 52-week high, and the prior four weeks included a 33.27% weekly loss and a 5.83% loss. Perpetual funding averaged -0.0102% per eight hours, so short positions paid to hold. An illustrative lender liquidates BTC collateral below a fixed trigger.
Judgment
A strong week does not change what the collateral can do on the downside: a -4.17% hour occurred Thursday, and one of the four prior weeks lost 33.27%. Raise the required margin for BTC, set from the worst hourly and weekly moves rather than this week's gain, and keep the trigger unchanged. Existing loans keep their terms; new loans use the higher margin. The price of this is slower origination in a recovering market.
What would change it
If the lender's own liquidation records show fills near the trigger price through the prior -33.27% week, the case for a higher margin weakens. If hourly and weekly moves stay at this week's lower end for several weeks, the margin can be reviewed downward.
What sets this case apart
A violent up week for collateral tests a downside trigger; the decision rests on gap risk and the recent crash, not on the rally.