Bitcoin futures market manipulation

[Canis Majoris]

I've been thinking about Bitcoin futures that had been added to a few regular exchanges in December, and it seems that I understand how Wall Street could manipulate the Bitcoin futures market as well as Bitcoin price itself. Many people think that these futures can affect Bitcoin prices and I agree with them to a degree, though for likely quite different reasons.

We all know that Bitcoin futures are cash settled. This basically means that when the contract expires a trader's account is simply debited or credited depending on the current Bitcoin price, and no delivery of real bitcoins takes place. When people buy contracts they expect prices to rise. Conversely, when they sell contracts, they expect prices to go down.

This opens wide the doors to market manipulation. The Bitcoin futures market makers can easily see how many contracts have been sold or bought at any given moment. When the number of bought contracts substantially exceeds sold contracts, market makers can sell real bitcoins at exchanges like Bitfinex, thus moving the price down and leaving traders with losses, and vice versa.

Such manipulation could make sense if there is enough volume in the Bitcoin futures market while the price can be easily moved in the required direction. This explains how Bitcoin futures can affect Bitcoin prices, though in a somewhat convoluted or even controversial way, while the number of open contracts can then be used as a contrary indicator of sorts.

What do you guys think of this scheme?

2 mod: if this topic belongs to Speculation, please move it there!

[Lancusters]

This is a great explanation of how the mechanism of futures trading. But I think that you're oversimplifying the situation. The price at which people are signing the contract this is just the trend. What will happen if in this moment there will be some event which will have a significant impact on the price? For example will address the issue of scalability. The price increase will be impossible to stop any emissions of coins on the market. Therefore, everything in this world is relative.

[Brunus]

At least someone tells the truth that nobody wants to hear!

When the bitcoin futures were launched, the prediction was bitcoin at 18.000 $ at january 18.
Actually, it was at 12.000 or something so.
Don't you think that someone had a BIG interest to provoke a fall?
Do you think that this unbelievable media campaign was a coincidence?

[Canis Majoris]

This is a great explanation of how the mechanism of futures trading. But I think that you're oversimplifying the situation. The price at which people are signing the contract this is just the trend. What will happen if in this moment there will be some event which will have a significant impact on the price? For example will address the issue of scalability. The price increase will be impossible to stop any emissions of coins on the market. Therefore, everything in this world is relative.

Could you explain in greater detail what you mean by the price being the trend? It seems like I don't quite get your point. If something unexpected happens like what you mention, then market makers will simply sit on their hands and do nothing. They will strike only if they are dead sure they will milk the market. This is how market manipulation works in general. Well, this is how I think it works. Anyway, everyone is welcome to chime in on this matter!

At least someone tells the truth that nobody wants to hear!

When the bitcoin futures were launched, the prediction was bitcoin at 18.000 $ at january 18.
Actually, it was at 12.000 or something so.
Don't you think that someone had a BIG interest to provoke a fall?
Do you think that this unbelievable media campaign was a coincidence?

Thank you for your kind words, I really appreciate it.

[xdrpx]

I recently read through a post by a user on "Why Bitcoin Futures aren't a conspiracy against Bitcoin" on reddit. It elaborated 3 reasons in detail as to why the current futures market is relatively new and isn't really affecting Bitcoins price (considering many people assume it's the cause of the downward trend in crypto prices this week and the previous). In short the first reason that the user mentioned was about a lack of volume in terms of open contracts on CME and CBOE on the day we noticed the value of Bitcoin plummet. The second reason being the maintenance margin requirements being too high which would discourage manipulation, basically for CME being 43% and CBOE being 40%, and then there's brokerage costs thus reguding leverage as compared to directly investing in Bitcoins. Lastly, the user also described that there were actually higher long positions as compared to short positions by wall street investors and this too were a small proportion of investors.

The post was a very interesting read and kind of changed my perspective on the amount of volume that would be required to invest inorder to really manipulate the prices of Bitcoin. I think the Bitcoin futures are still in its infancy stage to really cause any such sort of price downfalls or increases rapily.

Reference to the post I was talking about: https://www.reddit.com/r/Bitcoin/comments/7td20u/why_bitcoin_futures_arent_a_conspiracy_against/

[Samarkand]

... The second reason being the maintenance margin requirements being too high which would discourage manipulation...

Interesting post.

His other reasons are valid in my opinion, but the one I quoted seems
at least questionable to me. Most brokers that currently offer trading of these futures
have already announced that the high margin requirements are due to the novelty of Bitcoin
futures. Eventually, these margin requirements will be lowered to a level that is comparable
to other tradable assets.

Additionally, this won´t really deter anyone from making profit on the
Bitcoin futures by manipulating the Bitcoin spot market. It may raise the amount
of capital that is required to do so, but due to the attractiveness of this scheme
(shorting BTC futures, dumping real BTC before the settlement date) and the enormous
profit opportunities no one will refrain from doing this simply due to higher margin requirements.

Apart from that I´d guess that large traders can negotiate better terms with
their broker, which probably also includes a lower maintenance margin or even
the possibility to provide the margin capital only in the case it becomes
necessary (=call for additional cover).

[deisik]

This opens wide the doors to market manipulation. The Bitcoin futures market makers can easily see how many contracts have been sold or bought at any given moment. When the number of bought contracts substantially exceeds sold contracts, market makers can sell real bitcoins at exchanges like Bitfinex, thus moving the price down and leaving traders with losses, and vice versa.

Such manipulation could make sense if there is enough volume in the Bitcoin futures market while the price can be easily moved in the required direction. This explains how Bitcoin futures can affect Bitcoin prices, though in a somewhat convoluted or even controversial way, while the number of open contracts can then be used as a contrary indicator of sorts

Some additions may be appropriate

Manipulation of this kind is certainly possible but not right now. It would make sense if open interest (i.e. the number of futures contracts outstanding) was comparable to volumes traded at major Bitcoin exchanges. As far as I know, open interest is pretty inconsequential so far to make this manipulation economically feasible. You would have to risk too much to gain too little. On the other hand, this explains why seasoned traders will likely stay away from cash-settled Bitcoin futures in the future (pardon the pun). They definitely know this and similar tricks and won't let anyone lay hands on their precious dollars

[Dragon5]

The operator of one of Japan’s leading trading platforms for cryptocurrencies said it lost more than a halfbillion dollars in customer assets, the largest known cryptotheft and a development that could chill the craze for bitcoin-related assets. Manipulation?)))

[arpon11]

I've been thinking about Bitcoin futures that had been added to a few regular exchanges in December, and it seems that I understand how Wall Street could manipulate the Bitcoin futures market as well as Bitcoin price itself. Many people think that these futures can affect Bitcoin prices and I agree with them to a degree, though for likely quite different reasons.

We all know that Bitcoin futures are cash settled. This basically means that when the contract expires a trader's account is simply debited or credited depending on the current Bitcoin price, and no delivery of real bitcoins takes place. When people buy contracts they expect prices to rise. Conversely, when they sell contracts, they expect prices to go down.

This opens wide the doors to market manipulation. The Bitcoin futures market makers can easily see how many contracts have been sold or bought at any given moment. When the number of bought contracts substantially exceeds sold contracts, market makers can sell real bitcoins at exchanges like Bitfinex, thus moving the price down and leaving traders with losses, and vice versa.

Such manipulation could make sense if there is enough volume in the Bitcoin futures market while the price can be easily moved in the required direction. This explains how Bitcoin futures can affect Bitcoin prices, though in a somewhat convoluted or even controversial way, while the number of open contracts can then be used as a contrary indicator of sorts.

What do you guys think of this scheme?

2 mod: if this topic belongs to Speculation, please move it there!

I have never think of futures bitcoin in this way and this is a great eye opening in so many way. After going through op comments and what others are saying here I find out that bitcoin price price can really be manipulation through future trade. Since there is no really bitcoin transactions take place I think this give room for a lot of bitcoin price manipulation.

[Magister Magus]

Whales and big powers all the time try to manipulate the market, but in forex or in stock it's not so easy, as professional are not stupid.
But in crypto there are so many newbies that don't understand the manipulation dynamics that it's very easy to spread rumors and to be believed.
Please note a shocking truth: ALL declaration of politicians (I said ALL, not just some) have as main goal to influence the market: they know what will say, so they make all the time a kind or insider trading.
(If I'm the president of a country, and tomorrow I'm going to say that bitcoin will be illegal, don't you believe that tonight I'm going to sell all I have?
Then tomorrow will be a crash, I'll buy a lot of bitcoin very cheap, then the day after tomorrow I'll declare that I changed my mind and bitcoin it's not illegal... and so on.)

[patapon49]

If bitcoin starts to suffer the effects of future contracts then we lost in advance

[fanbeila]

Most of us already know that Bitcoin futures would affect the bitcoin price but has never thought in this way. We just thought that it would make bitcoin crash just like what happened in tulips bubble.Most of the experts have already predicted that Bitcoin futures may lead to bitcoin crash as it happened in tulips.We could also see that there were irregular movements of bitcoin price suddenly reaching ATH of 20,000 dollars and then suddenly falling down and remaining stand still in that price range for more time.It makes us to suspect that price manipulation is being done.

[Canis Majoris]

Most of us already know that Bitcoin futures would affect the bitcoin price but has never thought in this way. We just thought that it would make bitcoin crash just like what happened in tulips bubble.Most of the experts have already predicted that Bitcoin futures may lead to bitcoin crash as it happened in tulips.We could also see that there were irregular movements of bitcoin price suddenly reaching ATH of 20,000 dollars and then suddenly falling down and remaining stand still in that price range for more time.It makes us to suspect that price manipulation is being done.

Actually, i don't think we can blame Bitcoin futures for the price plunge as of late. They sort of fell victim themselves to the price manipulation, and their introduction allowed manipulators to earn a little bit more from the ones who were careless enough to invest in this market without thorough consideration. The price crash would likely have happened anyway, with or without Bitcoin futures.

I recently read through a post by a user on "Why Bitcoin Futures aren't a conspiracy against Bitcoin" on reddit. It elaborated 3 reasons in detail as to why the current futures market is relatively new and isn't really affecting Bitcoins price (considering many people assume it's the cause of the downward trend in crypto prices this week and the previous). In short the first reason that the user mentioned was about a lack of volume in terms of open contracts on CME and CBOE on the day we noticed the value of Bitcoin plummet. The second reason being the maintenance margin requirements being too high which would discourage manipulation, basically for CME being 43% and CBOE being 40%, and then there's brokerage costs thus reguding leverage as compared to directly investing in Bitcoins. Lastly, the user also described that there were actually higher long positions as compared to short positions by wall street investors and this too were a small proportion of investors.

For my part, I don't think either that Bitcoin futures are a conspiracy against Bitcoin. They are yet another tool for emptying the pockets of novice traders who may be attracted to the exchanges like CME and CBOE by being able to trade "Bitcoin" there, for all their big names and stuff like that.

Manipulation of this kind is certainly possible but not right now. It would make sense if open interest (i.e. the number of futures contracts outstanding) was comparable to volumes traded at major Bitcoin exchanges. As far as I know, open interest is pretty inconsequential so far to make this manipulation economically feasible. You would have to risk too much to gain too little. On the other hand, this explains why seasoned traders will likely stay away from cash-settled Bitcoin futures in the future (pardon the pun). They definitely know this and similar tricks and won't let anyone lay hands on their precious dollars

This is a valid point but I mentioned it in OP, though I agree that the possibility of such manipulation may push away big-time investors from this nascent market. Bitcoin futures without actual delivery look like a solid way of losing money so far.

Thank you guys for all your input!

[cynical]

very interesting thread.
I wonder if there is in fact a link between futures ending on January the 18th and the spread of the South Korean crypto ban fake news ?
its all a bit smelly to me.
I agree with fanbeila, there was talk about the markets being affected by futures when they were announced.
It will be interesting to see hoe the next expiry date ends and more importantly the lead up to it.

[Cryptomagnus]

More I watch the crypto market, more I see all kind of manipulations.
We need to understand that the stock market has very strict rules, against insider trading or market manipulation.
If you make unjustified claim that move the market, you will punished very hard.
In crypto we are in the far west, any player can say anything, so there is no way to trust anyone.

[Synash0619]

It is highly possible that BTC was manipulated because no certain body that control price. I think many are out there doing pump and dump.

[Magister Magus]

It's very easy to manipulate Bitcoin, because the majority of the owners has no trading experience so they are extremely sensible to any claim from governments or institutions.
Experienced forex traders know that from a declaration by a politician and a real decision there is a long way.
But this is a good thing, in the sense that the bitcoin market is easier to predict than the forex, and with a so high volatility the opportunities to make a profit are fantastic.

[R.Hasan]

Very sensible and informative thread.

Big money are playing with the price of Bitcoin, there too many factors and big whales now, futures gave the robber Barons a new tool to manipulate the markets and call the ball, anyone that believes the Japanese coincheck freeze and todays futures expiration is a coincidence, will get run over.
And I just don't get why a regulated market is allowed to enter crypto which is not fully regulated - and even mimanipulate or do insider business.
So what do Hodlers like me do who believe in a certain technology? We need to come up with something - because we're actually here since we don't believe in the established banking system.

[dimitriaustralia]

90-99% of all the Bitcoin is owned by 1% of all the users.
Bitcoin is an improvement to the monetary system only in efficiency. The main issue of the previous fiat currencies is more abundant in Bitcoin which is the concentration of the elites wealth making all other users slaves for the system.
Fair distribution and manipulation proof are the most important elements needed.
Also note the volatility as a way they increase their holdings through manipulation.
The entire crypto shere has been infiltrated not only bitcoin.

www.bitcoinb.io

Get involved and help expose the manipulation!

[Kakmakr]

I always like to say, What If in conspiracies like this. So, let's say "What if" they were the reason for the huge spike last year? They know Bitcoin futures could be manipulated and they needed coins to do that. So they started to buy coins before the price increased to a ATH.

looking back at the starting price of $1100, <where all this started> these people could do this for some time, before they have to start over again. Slowly dumping coins to lower the price. <This will explain the slow down trend and stability in the price>

They are forced to do this on a small scale, because there are specific rules that "cancel" out obligations to honour these futures, if specific volatility meet specific requirements. <Kind of countermeasures to protect against high volatility and also price manipulation on a large scale.> These mechanisms were introduced to prevent the influence from Asian markets that we manipulating the price at that time