There was an article out recently by Tom Lee, the co-founder of Fundstrat, who opined that the bitcoin futures contact could be a reason for bitcoin's steep price decline.
That did sound like a plausible explanation when i first read it. The bitcoin futures were launched in December when bitcoin was hovering around the $20,000 mark and it has since fallen to around $6,000 over the course of six months.
Previously, before the launch of the futures contract, there was no way for pessimists to bet against bitcoin and cryptocurrencies in general. The only way they could participate was by not participating. Staying on the sidelines, they could only watch as bitcoin prices rocketed up.
The futures contract allowed them to participate by shorting the market and they could be rewarded if prices were to fall. Easier said than done though because they would need to control enough bitcoin in order to influence markets.
There's an argument/theory that the futures contract allows whales to manipulate the market by shorting the futures and buying back their bitcoin on dips. Possible in theory but i'm not sure if the execution in real life would work out as planned. Definitely not risk-free unless you know in advance what the other whales will be doing.
Tom Lee mentioned volatility 10 days before the contract settlement. I'm not sure if he was referring to calendar days or trading days but for ease of calculation, let's assume calendar days.
| Month | Price T-10 | Price T | % Difference |
|---|---|---|---|
| Aug '17 | 4,377 | 4,372 | -0.11% |
| Sep '17 | 3,906 | 4,163 | 6.58% |
| Oct '17 | 5,591 | 5,781 | 3.40% |
| Nov '17 | 7,316 | 8,254 | 12.82% |
| Dec '17 | 16,625 | 14,656 | -11.84% |
| Jan '18 | 11,189 | 11,171 | -0.16% |
| Feb '18 | 9,495 | 10,301 | 8.49% |
| Mar '18 | 8,929 | 6,891 | -22.82% |
| Apr '18 | 8,163 | 8,987 | 10.09% |
| May '18 | 8,369 | 7,480 | -10.62% |
The first contracts were settled in Jan'18 and looking at the data, it doesn't seem as though bitcoin futures are causing sell-offs. If anything, the gains and losses are now spread out more evenly from month to month.
As i mentioned, with naysayers given a chance to participate, it seems as though some air has been let out of the balloon and that's a good thing overall.
