Did Bitcoin Futures Crash the Price?

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Panic was in the air yesterday when Europe, and then America, suddenly woke up to a sea of red with the three big ones down as much as 50%.

Bitcoin was leading the sell-off, with the rest following in lockstep, but absent any big news, finding a reason is difficult.

One candidate might be Roger Ver who, unfairly in our view, speculated in an interview on CNBC that there could be a situation where all bitcoin miners leave, making its network in-operational.

Considering that it was a mainstream audience which may have only heard that bitcoin could stop functioning and they would be unable to access their coins, they may have panicked.

However, what Roger Ver did not mention was that the mining algorithm could easily be changed in such situation. This is, after all, just code. Any problem, as such, can easily be fixed with the network proving it works and will continue to work probably virtually forever or as long as its needed.

Another reason for the sell-off might be Bitfinex and Tether closing new accounts registration, but neither of these two appear to be of such a scale as to cause a crash.

The more likely candidate therefore might simply be that there was some profit taking ahead of Christmas following stupendous gains, but why yesterday specifically? Could it be the bitcoin futures?

It was the last day of their first week of trading yesterday, closing a week long downwards movement that begun last Sunday when CME bitcoin futures opened.

Although futures were trading at a premium on December the 16th, bitcoin’s price nonetheless moved downwards and has kept going down until futures closed last night at 10PM London time to open on Sunday at 11PM GMT.

Now, those futures are trading at a discount, although part of it may be that they are closed, with the last price remaining frozen to what was on Friday, which may mean some of their shorts might get called.

CME bitcoin futures at closing on Friday

Volumes apparently picked up on the day as well, although that might have been expected considering the significant volatility yesterday.

CBOE’s bitcoin futures volumes more than tripled yesterday, while CME’s volumes picked up too on its first last day of trading for the week.

So, were bankers crashing bitcoin? Who knows, but there are quite a few coincidences in this first week of futures trading.

However, why they should affect spot price when they are fiat settled and never touch actual bitcoin remains unclear, with one of the potential reason being that they take away demand from real bitcoin to fake futures as they are cash settled requiring not delivery of the asset.

But, a potential correlation does not mean causation. It could have simply coincided with sentiment swings, so we might have to wait and see how they perform in the next few weeks to gain a clearer picture.

 

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