It’s the last Friday of the month. That means futures expire tomorrow and like clockwork bitcoin fell about 10% before recovering slightly to $9,400.
About 40,000 bitcoin representative contracts exchanged hands on CME this August 28th. That’s circa $380 million of Wall Street bankers money.
Every single day – except for weekends – they take a bet on whether bitcoin’s price in crypto exchanges will rise or fall, with such bets in total now usually amounting to about $300 million a day.
These bets never touch actual bitcoin, but they are based on bitcoin’s price as aggregated by CME on at least four exchanges: Bitstamp, Coinbase, itBit and Kraken.
“Each day, the BRR aggregates the trade flow of major bitcoin spot exchanges during a specific one-hour calculation window. This one-hour window is then partitioned into 12, five-minute intervals, where the BRR is calculated as the equally-weighted average of the volume-weighted medians of all 12 partitions,” they say .
Such partitioning is done to prevent spot price manipulation, but the use of this specific one hour period is interesting because all you need to do to circumvent it is to manipulate the price the day before.
9PM London time sounds perfect. Europe is maybe having dinner, some family time, watching the news, or maybe for some they have gone to bed. When they wake up, hopefully they’ll give some more downwards momentum preferably before 3PM. The contract can then expire and the Wall Street bears can make some money.
For months on and it still applies, with it unlikely to be a coincidence as it is now a bit far too predictable.
But why? Is it outright manipulation to keep the price down, with it most acutely felt as the contract is to expire, or are there innocent explanations?
If we take the latter, it is the end of the month so people need to get paid so they sell, but if that was the case you’d think some would sell on Monday, some on Friday, and so on in a more organic manner instead of around 9PM London time.
If we take the former, then the fiat settled futures are maybe “hedged” with the spot bitcoin whereby you buy BTC, short on CME futures, so cancelling each other out.
Near the contract expiry you sell the BTC, lowering price, thus profiting from the CME short.
That would have the effect of keeping the price down, especially if you short just before you sell the BTC, which would be obvious manipulation.
The wife of the SEC chairman works at Goldman Sachs, so we don’t expect the regulator to bother looking at what shenanigans might be going on here by the banks.
Now though at least we have a complete article which we can just copy and paste next month.