What Is the Risk of Using a Volatile Cryptocurrency (E.g. BTC) as Collateral for Futures?

Using a volatile asset like BTC as collateral introduces "basis risk" and the risk of "procyclicality." If the price of the collateral drops, the margin value decreases, potentially triggering margin calls even if the futures position itself is profitable. This can force liquidation at inopportune times and creates a positive feedback loop where market drops accelerate liquidations.