More Trouble for Bitcoin: Potential Sell-Off Looms

Wrapped Bitcoin (wBTC) makes up about 10% of the reserves for the overcollateralized stablecoin DAI.

Recently, investors are considering removing wBTC as collateral, which could lead to a Bitcoin sell-off if they decide to reduce their exposure due to Bitgo’s recent announcement.

On Saturday, BA Labs highlighted a risk on MakerDAO’s governance forum, mentioning Bitgo’s plan to transfer wBTC control to a joint venture with BiT Global, involving Justin Sun and Tron (TRX). This partnership raised concerns among the MakerDAO community, leading to discussions about dropping wBTC as collateral for DAI.

Some crypto whales are already rethinking their wBTC positions. A continued exit trend could increase Bitcoin selling pressure, affecting its short-term price. Even now Bitcoin lost the $60,000 support and is currently trading at $58,940.

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An investor on the forum compared this situation to previous issues with the TUSD stablecoin under Justin Sun, which led to operational and transparency concerns. To mitigate risks, BA Labs proposed reducing wBTC collateral in MakerDAO vaults from $1.25 billion to zero, disabling wBTC borrowing, and lowering its Loan-to-Value ratio to zero. If implemented, wBTC would no longer be used as DAI collateral.

wBTC is widely used to redeem DAI, and its removal could trigger a sell-off and influence other protocols. Investors need to deposit about three times the wBTC’s value to get DAI. For example, one vault holds 1,600.88 wBTC as collateral for a $34.5 million DAI loan, equating to $96.05 million in collateral at current Bitcoin prices. With DAI’s market cap at $5.35 billion and 10% in wBTC, this involves a $1.605 billion collateral stake.

Alexander Stefanov