A -5.41% hour inside a 40.90% weekly range tests BTC loan liquidation triggers
Should a lender widen the collateral margin it requires on BTC-backed loans, or keep its current trigger and rely on liquidation fills during Saturday's fast hour?
The market facts are real; the decision maker is illustrative.
The week and the position
In the week of 29 November 2021, BTC fell 13.76%, from 57,274.89 to 49,396.33, after trading to a high of 59,176.99 on Tuesday and a low of 42,000.30 early Saturday UTC. Saturday alone lost 8.30%, and the largest one-hour move was -5.41% at 05:00 UTC, the same hour as the low. Annualised realised volatility was 81.0%, volume ran 1.13 times the prior 12-week average, and price closed in the middle third of the range, 28.03% below the 52-week high. An illustrative lender accepts BTC as collateral and sells when a fixed coverage trigger is breached.
Judgment
A fixed trigger only protects the lender if the collateral can be sold near it, and a 5.41% hour that also prints the weekly low leaves no such guarantee. Raise the required margin on new BTC loans and set it from the worst hourly and daily moves rather than from the 81.0% annualised realised volatility figure alone, and keep the trigger above where a single hour can gap through it. Existing loans keep their terms, but new lending uses the higher margin. The loss accepted is lower loan volume in exchange for fills that clear near the trigger.
What would change it
If liquidations executed this week filled close to the trigger price despite the -5.41% hour, the case for a higher margin weakens. If hourly BTC moves shrink for several weeks and volume falls back below its 12-week average, the margin can be reviewed.
What sets this case apart
Unlike a week where collateral loses against its peer, here BTC lost 11.47 percentage points to ETH, so the margin question is specific to BTC rather than to crypto collateral generally.