Fundstrat cofounder Tom Lee says bitcoin futures contracts could be linked to the cryptocurrency's "gut-wrenching" decline.
Futures were launched in December and bitcoin has fallen from $20,000 to $6,500 since then.
There are concerns that bitcoin futures could be easily manipulated given the low liquidity on many key exchanges.
LONDON - A Wall Street analyst known for his bullish stance on bitcoin has flagged the possibility that bitcoin futures contracts could be hurting the cryptocurrencies price.
Bloomberg reports that Tom Lee, the cofounder of research firm Fundstrat, said in a note last week that bitcoin futures contracts could be behind bitcoin's recent "gut-wrenching" price declines.
Lee said in his report that there is "significant volatility" in bitcoin's price around the expiration date of CME Group and CBOE futures contracts.
BST (3.45 a.m. ET) on June 18.
Bloomberg reports that Lee wrote that traders who are long bitcoin and short futures could sell bitcoin during the price auction to cause the price to drop and leave their futures contracts "with a handsome profit."
Lee's theory raises the prospect that bitcoin could be vulnerable to manipulation due to futures contracts. The CME and CBOE futures contracts are settled based on a price derived from auctions across several exchanges. However, many of these exchanges have relatively low liquidity, meaning that people could potentially manipulate the price by selling or buying significant sums of bitcoin during the auction.
Business Insider highlighted the risk in December. John Spallanzani, the chief macro strategist at GFI Group, said he was concerned that low volumes on Gemini, one of the exchanges used to calculated price, could make it vulnerable to manipulation.
"The lower the volumes, the easier to manipulate," he said. "Since the volume is low and [bitcoin] is unregulated it is conceivable."
The Commodity Futures Trading Commission, which has oversight of bitcoin futures, is said to be involved in a US Justice Department probe into market manipulation of bitcoin. The precise nature of the probe is not clear at this time.