Fundstrat Global Advisors’ Thomas Lee explains that CBOE Bitcoin Futures contracts played an integral role in the deep decline of bitcoin price. As the futures expired tomorrow on June 13, bitcoin price has gone well above $6,600 price level now while the entire crypto market enjoys the green.
Bitcoin Futures pushed Bitcoin prices down
Bitcoin price experienced serious lows when it dropped below the $6,500 price level yesterday. The bloodbath in the market started at the weekend. A number of factors have been blamed for the huge price drop, from Coinrail hack to new research stating tether’s part in Bitcoin price pump last year among many others.
Now, another factor has jumped into the game. The head of research at Fundstrat Global Advisors, Thomas Lee says the extreme price dip in bitcoin might be due to the expiration of bitcoin futures.
The “significant volatility” around CME and Cboe future expirations played a part here. Furthermore, technical and sentimental factors have also been “awful” according to him.
June 13 has been the expiration date of this month’s futures.
The report shared by him cites the theory of Justin Saslaw that “Bitcoin seems to fall into expiration” as put by Bloomberg. He further notes that there have been six expirations since the bitcoin futures contracts have been launched by Cboe.
On an average, Bitcoin has fallen about 18 percent “in the 10 days preceding expiration, with price recoveries by the sixth day afterward” mentions Bloomberg.
Bitcoin price moves above $6,600 level as Futures expire
As the contracts move closer to the expiry date, if a trader is long bitcoin and shorts the futures, the holders might sell a large portion of their coins at VWAP (volume weighted average price) in order to minimize the tracking error.
However, near expiration, when selling the remaining bitcoin, it causes the prices to drop. This leaves the short position in futures to close with a significant amount of profits.
Lee also takes other factors into consideration such as insufficiency of inflows in the crypto market. He further notes that the net supply is more this year amidst mining rewards, ICOs, and capital gains taxes. This is when the absorption is hampered by the slow progress in developing institutional tools.
The impact of Cboe futures contracts can’t be denied as every month, they hold a lot of weight on bitcoin price. No doubt, big payers have a control here as they place short or long here. In order to get their short orders through, a large portion of bitcoins is pushed into the market that takes the prices down.
As the graph shows, bitcoin price started going down from June 10 over the weekend. Then it fell down sharply on June 11. On the day of bitcoin futures expiration i.e. June 13, the prices were going down as well.
However, from today onwards, the market started gaining its lost value back. The one-day bitcoin price graph is giving a lot of hope as the prices take a surge again. The entire crypto market is experiencing the green while Bitcoin is up by 4.80 percent at $6,655.
What are your views on Bitcoin futures playing a role in the BTC price fall? Share your thoughts with us!