Bitcoin (BTC) Futures Killed The Crypto Rally in Early January, says Economist
It has long been suspected that the Bitcoin (BTC) Futures that went live back in mid December 2017, were the cause of BTC starting its gradual fall from its peak value of $20,000 to current levels of around $6,600. News reaching Ethereum World News indicate that an economist also believes that the BTC futures contracts were to blame for the decline.
In an article by Yukio Noguchi, who is the said economist who hails from Japan, the launch of Bitcoin futures was the turning point for the King of Crypto. Noguchi argues that it was no coincidence that BTC values fell once CBOE started offering BTC futures on the 10th of December, and the CME group on December 17th. He also painted a grim picture of the future when he stated that we will never see a rapid surge of the King of Crypto ever again.
Similar sentiments were echoed by the US Federal Reserve officials in a letter that stated the following:
Before December 2017, there was no market for bitcoin derivatives. This meant that it was extremely difficult, if not impossible, to bet on the decline in bitcoin price. Such bets usually take the form of short selling, that is selling an asset before buying it, forward or future contracts, swaps, or a combination.
The same letter stressed that betting on an increase in the value of BTC was easy. All you had to do was buy BTC and wait the value to go up. The letter goes on to add:
And until December 17, those investors were right: As with a self-fulfilling prophecy, optimists’ demand pushed the price of bitcoin up, energizing more people to join in and keep pushing up the price. The pessimists, however, had no mechanism available to put money behind their belief that the bitcoin price would collapse. So they were left to wait for their “I told you so” moment.
The pessimists now had the BTC futures.They could bet on the price decline. This introduced a new variable in the equation that is the value of BTC. New investors might have been turned off with this new betting mechanism of Futures contracts against a strong BTC. The demand for BTC fell and so did the price.
Evidence of this can be seen when some Bitcoin futures expired only a few days ago on the 29th of June. The price of BTC had dropped to $5,800 levels at the end of the day only to spike to $6,400 early Saturday. This means traders were waiting for the Futures contracts to expire so they can buy in. They held back their funds causing BTC to nosedive for a few hours.
One is left to wonder what damages futures contracts on Ethereum (ETH), Ripple (XRP), Litcoin (LTC) and Tron (TRX) will do to the digital assets. With respect to Tron futures, the crypto exchange known as Bitmex has recently started offering them due to public demand.
In conclusion, perhaps it is true that any futures contract on a digital asset is the beginning of the end of its capability to rally in a fast and furious manner in the crypto markets. This in turn means that the traditional financial instruments found in Wallstreet are harmful to the crypto markets.