Bitcoin Futures: Are They the Main Reason for the Fall of Cryptocurrency?
In December 2017, two US stock exchanges, CBOE and CME, introduced Bitcoin futures. This event coincided with the Bitcoin historical price surge to $20,000. However, soon after the launch of futures, this number began to decline. people may wonder: are these events related to each other? How could futures trigger a cryptocurrency fall? And will they affect the crypto market in future? Let’s find out!
What are the Consequences of the Launch of Bitcoin Futures?
Bitcoin futures became a kind of experiment for American regulators.
- Bitcoin futures were designed to show how the market is interested in the new asset.
- Futures had to introduce cryptocurrencies into the traditional financial system.
- And, they had to attract new investors
In part, all the goals were achieved. The experiment showed that interest in cryptocurrencies in traditional markets really exists, but it is rather restrained. For several months, the trading bitcoin future volume was slightly less than 1% of the trading volume of BTC on the entire market. This number, however, is growing constantly. For a new highly volatile and risky asset, this is not the worst indicator. Not only the US but also other countries have been engaged in more detail into issues regarding the legalization of cryptocurrencies.
Each statement from the cryptocurrency regulation authorities provoked a surge of interest in Bitcoin followed by the arrival of new investors to the bitcoin futures exchange and, as a consequence, causing another wave of growth of the already rapidly rising asset. On December 17, after the introduction of futures on one exchange and a day before their introduction on another, bitcoin reached it’s historical $20,000 value. After this, a rollback occurred. Many people say that futures were one of the main reasons for that.
Did Bitcoin Futures Trigger the Collapse of the Cryptocurrency Market?
The euphoria around Bitcoin provoked unsustainable growth during a relatively long period of time. An asset can survive such growth without radical consequences for several days or weeks, but not for two months, as it happened in the case of BTC. This growth was the consequence of:
- Overbought Bitcoin
- Overheating of the entire cryptocurrency market
- Investors from traditional markets who could not fail to notice this
While crypto-newcomers were going to make money trading bitcoins and counted on the further growth of BTC, more experienced large players from traditional markets predicted a drop due to the overpricing of crypto assets. Among them, were both opponents of cryptocurrencies and investors who decided it is possible to make some money on BTC futures.
The first bitcoin futures expiration date was in early 2018. The crypto market fell noticeably in January, but this was not enough for the futures holders. There are not so many small and medium-sized investors on traditional exchanges (such as CBOE and CME); large investors predominate.
Accordingly, many futures holders had the opportunity to contribute to the rapid bitcoin fall. Many of them could use futures because in February, bitcoin fell to $6000, shortly before the expiration of the futures, that is, more than three times. It is difficult to call such a fall natural in light of these details.
With the introduction of cryptocurrencies in the global market, the situation is drastically changing. Most of the participants in the global market are pessimistic about cryptocurrency. Most investors who bought bitcoin futures put on a decline due to confidence in the unreliability of the assets.
Some enthusiasts support such argumentation with the theory that btc futures led to long-term stagnation of the cryptocurrency market. So is it really the fault of the US regulators’ experiment?
Are BTC Futures the Main Reason for the Cryptocurrency Market Fall?
Bitcoin futures regulation is hardly the key reason for the fall of cryptocurrency. The modern cryptomarket draws interest from many different sides. It is under the influence of mulitple factors simultaneously. Some of them are superimposed upon each other. Events that triggered the launch of futures also interacted with other external events thus we are not talking about an independent argument.
Let’s consider in more detail the consequences of launching futures in the context of other events on the cryptocurrency market:
- The sale of bitcoin at the peak of its value with the intention of making a profit on a further decline by buying futures
- The investors’ forecast reflected in the downturn futures aroused fears of other bitcoin holders. They rushed to get rid of the asset
- Holders of futures drop BTC by the time contracts expire, after which it does not have time to recover
- Pessimistic investors who bought futures balanced the market and led the bitcoin rate to the real value
All this can negatively affect a cryptocurrency environment to some extent, restraining the growth of bitcoin and the majority of cryptocurrencies depending on it. On the other hand, these same factors keep a crypto market from unjustified growth and overvaluation.
Today, no one can call the market as overheated as it was in December 2017. This means that more and more people will use bitcoin futures trading to cause new cryptocurrency pump stages.