An incredible $1.7 billion worth of bitcoin contracts exchanged hands on CME this Thursday, breaking all records for futures.
That’s the highest level it has ever been both in terms of the number of contracts exchanged, 29,225, as well as in term of value traded.
The high volatility on Wednesday led to 26,491 contracts exchanging hands, worth $1.5 billion, with Thursday toping it further.
Today the June futures contract expires with the price usually falling on the Wednesday or Thursday prior to then usually slowly rise on expiry Friday.
The numbered daily candles above are all the Thursday before expiry Friday.
On the 25th of April, we have one of the biggest red candle during that period, with bitcoin falling the day before too, Wednesday the 24th of April.
In May, we likewise have a pretty big red candle on the 30th of May, followed by a recovery with price then rising or falling based on other factors.
Then yesterday there was the biggest red candle probably since early 2018, with it appearing to recover today.
This clear pattern is due to how futures are designed with an index determining price between 3PM to 4PM London time each day.
To manipulate it, therefore, you lower or raise the price the day before sometime after 4PM on a Thursday.
This could also occur if they are hedging. Say if they were long in spot bitcoin, but short on futures, they close the long on Thursday preferably by market selling then the short futures contract expires on Friday.
So as a simple example, say you’re long $1,000 worth of bitcoin and short on futures by the same amount. Price increased by say a $5,000 gain. Since you’re both long and short, you’ve earned zero.
Now you close the long, pocketing $5,000 there, but you’re minus $5,000 on the short so it’s still zero.
Except of course when you closed the long you market sold, so you have $5,000 and now because price fell by say $3,000, you’re only minus $2,000 on futures short.
That’s assuming price doesn’t recover and then doesn’t go on to rise further before expiry which could lead to significant losses.
Thus at some point this strategy presumably reverses as it can potentially work with both market selling and market buying.
In addition, you can always claim you’re hedging when you’re sort of manipulating the price.
But not without risk. The chief risk being its predictability. Since trading is a zero sum game, anyone’s gain is someone else’s loss and vice versa.
At some point therefore all those gains during those three Thursdays might lead to a Thursday when they’re all wiped out.
Because like a thief gets more and more lax and less on guard and thus eventually gets caught due to sloppiness, so too a manipulator goes bigger and bigger until he or she loses all the gains.
Trading volumes are however rising across the board as there has been considerable volatility, but as expected this Thursday too has played out almost to the dot.