[2018-07-03] Economist: Bitcoin Futures Killed the 2017 Bull Run

[Terraformer]

As the fluctuations in the price and trading volume of Bitcoin continue to flummox the oracles of CNBC, a noted Japanese economist has written an article to explain what he thinks killed off the 2017 bull rally and began this 2018 bear driven roller coaster ride the cryptocurrency has been taking.

Did Futures Kill the 2017 Bitcoin Rally

Japanese economist Yukio Noguchi wrote an article last week for the Japanese periodical Diamond online that is getting a lot of attention among crypto traders. In it he links the start of the Bitcoin futures market with the end of Bitcoin’s meteoric price increases in December 2017.

The CBoE began trading Bitcoin futures on December 10, 2017, that day the price of Bitcoin stumbled, dropping about $3,000 in a day. It rallied from there gaining new heights as it hovered at the threshold of $20,000 for a few days before bouncing up and down, gaining and losing thousands every other day. By January 6 it fell off a cliff and has never got back up over $10,000 in 2018.

In Noguchi’s own words, translated from the original Japanese, “Because it’s now possible to trade on bitcoin futures, you’ll never see a rapid surge again,”

Apparently, Noguchi is not alone in this opinion that the creation of the Bitcoin futures market was key to ending the 2017 bull run. According to Forbes, nearly the same argument was made in May by economists at the Federal Reserve Bank in San Francisco in a paper titled, “How Futures Trading Changed Bitcoin Prices.” The paper reads in part:

“The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence, rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.”

Unlike the usual round-up of old-school financiers who seemingly weekly predict the bursting of the Bitcoin bubble like Warren Buffet who has likened the cryptocurrency to rat poison, economists at the Fed compare the price drop to other markets that have experienced rallies and market corrections.

Continue reading >> https://www.newsbtc.com/2018/07/03/economist-bitcoin-futures-killed-the-2017-bull-run/

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[buwaytress]

Well, at the very least he is late 7 months in making this analysis. Timing correlation is certainly there, but the very limited markets impact of CME/CBoE anyway were already way priced in before December. If anything the bull run took place at the same time those futurea launched.

Anyway, he'll shrink back into more comfortable waters once price surges happen again. Be that in 6 months or 2 years.

[davis196]

I`m talking about the same thing for about 6 months.Bitcoin futures are something evil for the bitcoin market.
If BTC futures trading is gone,the btc price will skyrocket to 20K and beyond.
Anyway,the 2017 bull run was "killed" by many other factors,including the new Japan and South Korea regulations,the new tax year,some negative news and FUD,Mt Gox liquidation.
We can`t just blame one thing for the bearish market.

[richardsNY]

I'm already waiting for press threads like:

Bull run fueled by Bitcoin futures.
Bitcoin futures the sole reason it hit $50,000 last night, report shows.
SEC investigates Bitcoin futures trades after reaching all time high.

It's just the usual mainstream media nonsense. There is as much correlation between the bear market as there will be when we experience the next major bull run. It's like the mainstream media just doesn't want to believe that the market can go up or down naturally. What goes up fast comes down fast, is it that hard to understand? Economists and all types of experts just rehash that what has been rehashed many times already, just like the Tether situation.

[darkangel11]

I wrote this months ago when people were discussing the downtrend and I saw a couple of traders and analysts mention it in their yt videos. Basically when futures were announced we were at 5k USD, people got hyped and pumped it to 20k, with many who wanted to invest in futures going into BTC first, as the futures market was still closed. When it opened, right in the beginning of 2018, all those people moved from BTC to futures putting everything into shorts, because it was obvious that there will have to be a correction after such a huge bull run. That made us fall to 10k. Exchange hacks and FUD did the rest.

[Carlton Banks]

If people (and let's remember: everyone has access to the BTC market) buy Bitcoin up, and these official financial system futures markets got the market sentiment wrong, what are CME or CBOE gonna do, tell everyone they have to give the Bitcoin back to make it right again?

This also ignores the most crucial fact from the BTC futures contracts that exist on exchanges in the official markets: no BTC ever changes hands, they're not settling in BTC or directly participating in the Bitcoin market in any way (or at least not publicly). That means they must follow the real markets, they cannot lead the BTC market.

[RamonBTC]

I suspected about it since then. Is it made for this intention? To control the price of bitcoin then they might be happy because it’s working. For some sense.

I do understand that this economist also have biases, but japan as a competitive bitcoin country there is a big difference, if the one telling this is from different countries then I will surely be in doubts.

Sooner the truth will come out in the open if this are all true. I’ll wait for this information more than ever.

[jjacob]

If people (and let's remember: everyone has access to the BTC market) buy Bitcoin up, and these official financial system futures markets got the market sentiment wrong, what are CME or CBOE gonna do, tell everyone they have to give the Bitcoin back to make it right again?

This also ignores the most crucial fact from the BTC futures contracts that exist on exchanges in the official markets: no BTC ever changes hands, they're not settling in BTC or directly participating in the Bitcoin market in any way (or at least not publicly). That means they must follow the real markets, they cannot lead the BTC market.

I am not sure that is the case. Even if no BTC changes hands in the futures markets, they can lead the BTC markets. If I open a big short position in the futures market and drive the price down, the BTC spot market will follow. Arbitrageurs would see the price difference and try to bridge the gap, driving down the price of Bitcoin in the spot market.

[Carlton Banks]

I am not sure that is the case. Even if no BTC changes hands in the futures markets, they can lead the BTC markets. If I open a big short position in the futures market and drive the price down, the BTC spot market will follow. Arbitrageurs would see the price difference and try to bridge the gap, driving down the price of Bitcoin in the spot market.

do you know what a futures market is

[felixesteban]

That's the biggest reason of this decline. If everything had gone under normal circumstances, the price of bitcoin would have already reached $ 50,000.

[squatter]

If people (and let's remember: everyone has access to the BTC market) buy Bitcoin up, and these official financial system futures markets got the market sentiment wrong, what are CME or CBOE gonna do, tell everyone they have to give the Bitcoin back to make it right again?

This also ignores the most crucial fact from the BTC futures contracts that exist on exchanges in the official markets: no BTC ever changes hands, they're not settling in BTC or directly participating in the Bitcoin market in any way (or at least not publicly). That means they must follow the real markets, they cannot lead the BTC market.

I am not sure that is the case. Even if no BTC changes hands in the futures markets, they can lead the BTC markets. If I open a big short position in the futures market and drive the price down, the BTC spot market will follow. Arbitrageurs would see the price difference and try to bridge the gap, driving down the price of Bitcoin in the spot market.

This doesn't apply to cash-settled futures markets. Cash-settled = real arbitrage is impossible. You can set up hedge trades to profit from the price gap between markets, but there's no way to withdraw BTC from the futures side. So, there's no additional supply being dumped on the spot markets.

If contracts require delivery in BTC (supposedly this is how the ICE contracts will work), then I could see them affecting spot markets because it will be a legitimate avenue for investors/traders to buy actual bitcoins. That means real demand meeting real supply, and real arbitrage.

[bbc.reporter]

If people (and let's remember: everyone has access to the BTC market) buy Bitcoin up, and these official financial system futures markets got the market sentiment wrong, what are CME or CBOE gonna do, tell everyone they have to give the Bitcoin back to make it right again?

This also ignores the most crucial fact from the BTC futures contracts that exist on exchanges in the official markets: no BTC ever changes hands, they're not settling in BTC or directly participating in the Bitcoin market in any way (or at least not publicly). That means they must follow the real markets, they cannot lead the BTC market.

Also, it should be observed how much volume the futures market has daily, and know if any of the liquidity there do affect the existing bitcoin market and why. I reckon it is too early to say, especially if they are only working on 7 months of market data.

There are already some people spreading FUD that bitcoin is being manipulated by the whales trading in the futures market. WHAT?

[jjacob]

I am not sure that is the case. Even if no BTC changes hands in the futures markets, they can lead the BTC markets. If I open a big short position in the futures market and drive the price down, the BTC spot market will follow. Arbitrageurs would see the price difference and try to bridge the gap, driving down the price of Bitcoin in the spot market.

do you know what a futures market is

My, my. Such arrogance and ignorance don’t go well together.

This doesn't apply to cash-settled futures markets. Cash-settled = real arbitrage is impossible. You can set up hedge trades to profit from the price gap between markets, but there's no way to withdraw BTC from the futures side. So, there's no additional supply being dumped on the spot markets.

If contracts require delivery in BTC (supposedly this is how the ICE contracts will work), then I could see them affecting spot markets because it will be a legitimate avenue for investors/traders to buy actual bitcoins. That means real demand meeting real supply, and real arbitrage.

It doesn’t really matter whether the contract is cash settled or settled by delivery, as long as (this is a crucial assumption) you are able to execute a transaction in the spot market for the settlement price, at the settlement time. That is the reason why cash settled contracts exist. Think about it - it doesn’t matter whether I get 5 bitcoins delivered to me in the futures market, or X $, with which I can buy 5 bitcoins. The arbitrage trades still hold good.

[1Referee]

If BTC futures trading is gone,the btc price will skyrocket to 20K and beyond.

The futures won't be going anywhere. By your logic we won't be reaching $20,000 again?

Anyway,the 2017 bull run was "killed" by many other factors,including the new Japan and South Korea regulations,the new tax year,some negative news and FUD,Mt Gox liquidation.

The bull run of last year 'killed' itself for all reasons a bubble in the regular market 'kills' itself. It was NOT bad news or whatever other nonsense. It was just a matter of buy the rumor and sell the news. If you also take into consideration the following[1] aspects, the correction was near guaranteed to happen. Whoever shorted Bitcoin at that point, you have done extremely well.

[1]
The price was extremely overbought and near a very important psychological level, being $20,000.
There is years and years of evidence (look up the charts) that the price ALWAYS goes down in January.
And perhaps that tax selling could be a thing as well. There is no direct evidence for that, but it would make sense if it happens.

Also, the MtGox thingy started to reach the headlines after the correction started.

[NeMa94]

We have seen and we will see a lot of analysis, but neither one is complete. As many of you have mentioned, I also agree that one factor cannot be the only reason for the drop in the price of BTC. It may be the biggest influencer (but I don't believe that this is the one), but it cannot be said that it's just "it's fault". Regulations and major exchange frauds and investigations might be a bigger influencer. Can't tell, but I hope it will be gone soon  

[squatter]

This doesn't apply to cash-settled futures markets. Cash-settled = real arbitrage is impossible. You can set up hedge trades to profit from the price gap between markets, but there's no way to withdraw BTC from the futures side. So, there's no additional supply being dumped on the spot markets.

If contracts require delivery in BTC (supposedly this is how the ICE contracts will work), then I could see them affecting spot markets because it will be a legitimate avenue for investors/traders to buy actual bitcoins. That means real demand meeting real supply, and real arbitrage.

It doesn’t really matter whether the contract is cash settled or settled by delivery, as long as (this is a crucial assumption) you are able to execute a transaction in the spot market for the settlement price, at the settlement time. That is the reason why cash settled contracts exist. Think about it - it doesn’t matter whether I get 5 bitcoins delivered to me in the futures market, or X $, with which I can buy 5 bitcoins. The arbitrage trades still hold good.

You're making a big assumption with that condition (highlighted in bold). Sure, you could do that, if you can afford to trade CME contracts, and if you want a super inefficient way to accumulate bitcoins -- which still doesn't solve the spot market counterparty risk problem. The primary motive to trade regulated cash-settled futures is lack of counterparty exposure to unregulated spot exchanges. But that fundamentally means you're trying to profit from spot market moves (in cash), not move the spot market. CME traders aren't turning around and wiring their profits to Bitfinex, etc. That would be an outlandish assumption.