CME Bitcoin futures started bear market - Federal Reserve

[bbc.reporter]

Is the letter published by the Federal Reserve real? The link in the article of the said letter goes to another bitcoinnews.com story about games in the cryptospace that is not related to this article.

In any case, is this another example of incomepetent reporting by the bitcoin news media or fud spreading?



In a statement widely overlooked by the Bitcoin community, the Federal Reserve published a letter on its website in May 2018 blaming the launch of Bitcoin futures markets on the Chicago Mercantile Exchange (CME) for the decline of Bitcoin’s price.

The Federal Reserve says this sort of market behavior has been observed in other asset classes when futures markets are introduced. Specifically, it mentions how the mortgage industry boom was reversed when futures markets for mortgage securities were launched.

Its reason for this is that when a new asset class is born, there are optimistic investors who buy it up, driving the market upwards. However, pessimistic investors have no voice and no way to bet against an asset’s value, until futures markets are launched. Once futures markets are launched, pessimistic investors can short sell, where they buy futures contracts via a loan, sell them for cash and then buy back the contracts later at a lower price before the contracts expire.

The Federal Reserve implicitly says that Bitcoin would have kept rising past USD 20,000 if CME had not launched Bitcoin futures and explicitly says the CME Bitcoin futures are the exact reason for the beginning of Bitcoin’s price collapse.

Further, the investment opportunity presented by Bitcoin futures diverts investment away from the spot markets. Bitcoin futures on CME are cash settled, meaning no Bitcoins are backing them. Therefore, investment into the futures does not increase spot demand for Bitcoin but in fact, causes Bitcoin’s price to be lower since the money invested into the futures is diverted from the spot market.

The Federal Reserve explains how the combination of short selling and diversion of investment away from the spot markets creates a feedback loop which forces Bitcoin’s price lower.

Read in full https://bitcoinnews.com/federal-reserve-cme-bitcoin-futures-prompted-bear-market/

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[Baofeng]

Funny because Nov. 30 is a another date to bitcoin future expirations and its seems the price slump again from a rally as high as $4300 and now we are back a shade below $4k. But its really hard to tell if they're really the catalyst for the bear market. Although if you're in this community during December 2017, you will hear some members saying that they have mixed feelings about this kind of offerings. Although they entering into the cryptosphere really pushed the price to all-time-high, but I don't know if we can also blame them for the massive sell-offs specially during or near the expiration dates.

[davis196]

Fake news or not,I kinda believe this theory.The bitcoin futures trading has a significant influence over the bitcoin market.The Bakkt project might make everything worse.I really wish that we could turn back to the good old days without BTC futures trading.

[exstasie]

Is the letter published by the Federal Reserve real? The link in the article of the said letter goes to another bitcoinnews.com story about games in the cryptospace that is not related to this article.

In any case, is this another example of incomepetent reporting by the bitcoin news media or fud spreading?

It wasn't The Fed like the article makes it sound. It was the Federal Reserve Bank of San Francisco. It was basically a research paper (done by their researchers and a Stanford professor), sort of in the vein of some of BitMEX Research's stuff.

I think there's some substance to what they're saying here:

We suggest that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value.

I think this was apparent in 2014 too. Bitfinex was just becoming a prominent, liquid exchange at the end of 2013, and it was the first place you could easily short BTC. Then came the longest bear market in history!

You can see BitMEX's volume rose similarly at the end of the 2017 bubble (and has only continued to rise since). I don't think it's a coincidence.

CME's volume is pretty high, so although there is no direct arbitrage, maybe people follow it.

[Tytanowy Janusz]

Its reason for this is that when a new asset class is born, there are optimistic investors who buy it up, driving the market upwards. However, pessimistic investors have no voice and no way to bet against an asset’s value, until futures markets are launched. Once futures markets are launched, pessimistic investors can short sell, where they buy futures contracts via a loan, sell them for cash and then buy back the contracts later at a lower price before the contracts expire.

There is alwais a way to short asset. I've heard about manny invesotrs shorting btc at 5k-20k range in 2017.

One on the possibilities is phisical short. You simply go to big exchange and borrow their bitcoins stored in hot wallets paying them small fee. After that you sell those btc on market and rebuy at lower price.

[bbc.reporter]

Is the letter published by the Federal Reserve real? The link in the article of the said letter goes to another bitcoinnews.com story about games in the cryptospace that is not related to this article.

In any case, is this another example of incomepetent reporting by the bitcoin news media or fud spreading?

It wasn't The Fed like the article makes it sound. It was the Federal Reserve Bank of San Francisco. It was basically a research paper (done by their researchers and a Stanford professor), sort of in the vein of some of BitMEX Research's stuff.

I think there's some substance to what they're saying here:

We suggest that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value.

I think this was apparent in 2014 too. Bitfinex was just becoming a prominent, liquid exchange at the end of 2013, and it was the first place you could easily short BTC. Then came the longest bear market in history!

You can see BitMEX's volume rose similarly at the end of the 2017 bubble (and has only continued to rise since). I don't think it's a coincidence.

CME's volume is pretty high, so although there is no direct arbitrage, maybe people follow it.

Hehehe we are tricked by another clickbait article from the bitcoin news media once again.

However, I agree that the Federal Reserve of San Francisco's research has some substance. Does this then imply that the bear market will be longer than speculated?

[exstasie]

Hehehe we are tricked by another clickbait article from the bitcoin news media once again.

However, I agree that the Federal Reserve of San Francisco's research has some substance. Does this then imply that the bear market will be longer than speculated?

Their report was published back in May of this year, so that's something to keep in mind. I'm not sure why it's being rehashed now.

But that's the general implication, yeah. A long term bear market, perhaps like 2014-2015. We're approaching one year since the top. We should probably expect it to last a while longer yet.

[el kaka22]

Not a shock if you ask me. We all knew this was the reason considering it is much easier option and quite possible. Think about people who were rich during the peak of bitcoin and had tons of bitcoin at their hand and all of a sudden there is a chance to double dip your bitcoin into double the profit.

They took that chance and went with it for a year, it is not the reason right now but it was the reason why it all started this year. They were capable of selling their bitcoins to drop the price and also use the same money to buy shorts for bitcoin, that way they were making money by selling at high prices (making it lower) and on top of that made money because of the price drops.

They were making double the money on the same effort as just selling. Hence it was quite expected for them to do this and lower the price.

[gentlemand]

Seems like a crock of absolute shit to me.

The prospect of futures drove the bubble to the bubbliest levels imaginable. When they arrived they turned out to be nowt. Volumes were so piddling for so long after their launch no one was making significant amounts from them.

Buy the rumour, sell the news. A classic case if ever there was one.

$3 XRP is more than enough to tell anyone that this was a bubble that was just aching to pop.

[tokeweed]

Hehehe we are tricked by another clickbait article from the bitcoin news media once again.

However, I agree that the Federal Reserve of San Francisco's research has some substance. Does this then imply that the bear market will be longer than speculated?

Their report was published back in May of this year, so that's something to keep in mind. I'm not sure why it's being rehashed now.

But that's the general implication, yeah. A long term bear market, perhaps like 2014-2015. We're approaching one year since the top. We should probably expect it to last a while longer yet.

That's exactly the argument I was making in the BTFD thread.  A great example is Japan's Nikkei.  It still is unable to break its ath made on 1990.  That's like almost 30 years ago and backed by one of the best economies in the world.  It could happen to BTC too.  IMHO.  Maybe not that long...  But long. 

[exstasie]

Seems like a crock of absolute shit to me.

The prospect of futures drove the bubble to the bubbliest levels imaginable. When they arrived they turned out to be nowt. Volumes were so piddling for so long after their launch no one was making significant amounts from them.

Buy the rumour, sell the news. A classic case if ever there was one.

That's one narrative, but like every other narrative, it could be bullshit too. The idea that futures markets launching drove the bubble is another big assumption. They were just additional nuggets of hype thrown into a frothy market that was going to pump no matter what. If you "sold the news" on CBOE's launch, you'd have gotten short squeezed pretty badly.

$3 XRP is more than enough to tell anyone that this was a bubble that was just aching to pop.

Maybe so, but you shouldn't be surprised if it went to $20 or if BTC went to $100K. Markets aren't rational. The bears holding your opinion were all selling well below $10K.

[1Referee]

A great example is Japan's Nikkei.  It still is unable to break its ath made on 1990.  That's like almost 30 years ago and backed by one of the best economies in the world.  It could happen to BTC too.  IMHO.  Maybe not that long...  But long. 

It could. It could not. This market is just one spark away from bubbling up again. The sentiment is what people pay attention to. Last year people were convinced of $50,000-$100,000 and now we're going down people expect $1500 to be the next bottom, and have the bear market last years and years. Everything should be taken with a truckload of salt.

In the end, we don't need the price to keep breaking one insane level after the other. The hypes we're going through never last long and the correction that follows makes people's stomach turn badly.

The best thing is that markets don't do what we think they will do, and if enough people are convinced that we'll keep falling, we might be up for what people refer to as a recovery. People were overly bullish above $6000 and seem to be overly bearish right now. It's going to be interesting to see what happens from here.

[figmentofmyass]

A great example is Japan's Nikkei.  It still is unable to break its ath made on 1990.  That's like almost 30 years ago and backed by one of the best economies in the world.  It could happen to BTC too.  IMHO.  Maybe not that long...  But long. 

It could. It could not. This market is just one spark away from bubbling up again. The sentiment is what people pay attention to. Last year people were convinced of $50,000-$100,000 and now we're going down people expect $1500 to be the next bottom, and have the bear market last years and years. Everything should be taken with a truckload of salt.

we're definitely not just one spark away from another bubble. i agree with your overall point about sentiment, but it's only been a couple weeks since a new downtrend was triggered. we can't expect to fall from an 8-9 month long range and then immediately recover. we don't need to go to $1500, but downtrends do need time to play out. in virtually all markets (and this is true in bitcoin's past cycles too), we'll see a recovery and significant sideways period before entering a new bull market.

[bbc.reporter]

@figmentofmyass. Agreed. One spark away from a bull market might only occur if there was no futures market which is what the article is speculating.

We might not be in this bear market if there was no bitcoin futures market hehehe.

[gentlemand]

We might not be in this bear market if there was no bitcoin futures market hehehe.

I don't buy this myself. The bubble top was even sillier than the previous one by an order of magnitude thanks to alts and ICOs. It went from bubble to fully insulting. I don't see where the extra steam to carry on upwards could possibly have come from.

Despite the extra dollop of silliness the way it's played out has been broadly similar so far. It looks like a repetition of a similar cycle so far to me. We should have more confirmation of that by the middle of next year.

[dothebeats]

A futures market alone could not single-handedly be the reason for such a tremendous crash, though it could have been a major part of it for all we know. In the case of CME, their futures started on Dec. 18, and by then we all know that the price is slowly reaching its final peak, up until the start of the crash in Dec. 22. That time, the price was slowly losing steam and everyone is on the sell mode. I don't believe that CME futures alone have crashed the market; panic sells also chimed in, too. If CME hasn't launched their futures market, we would still see the same crash, too, keep in mind that we had the Gox trustee to start it all.

[bbc.reporter]

@dothebeats. Agreed. It might not be the only reason, however it might be one of the biggest reasons why bitcoin went on a tremendous crash as explained in the article.

I do not know whether to be bullish or bearish on this new article hehehe.



Nasdaq confirms it will list Bitcoin Futures

The UK’s Daily Express newspaper broke the news this morning, confirming recent rumours which had been circulating about the New York-based stock exchange.

The news should herald a wider acceptance of the cryptocurrency throughout the world, and is a huge step towards mass adoption.

According to the Express’s article, the Vice President of Nasdaq’s media team – Joseph Christinat – confirmed “Bitcoin Futures will be listed and it should launch in the first half of next year”.

Christinat added that Nasdaq were awaiting the green light from the Commodity Futures Trading Commission (CFTC), but suggested that was virtually signed and sealed.

“We’re doing this, and it’s happening,” he stressed, adding the current volatility in the market would have no bearing whatsoever on the decision to press ahead with the listing.

Read in full https://coinrivet.com/nasdaq-confirms-it-will-list-bitcoin-futures/

[Crypdon]

They look at the news and exagerrate which direction it will go. The bitcoin cash wars will cause a major dump and these futures traders took advantage of a bad situation and made it worse.

[muslol67]

I agree that future contracts start was not a good thing for BTC. At the first look, we thought it is ok! But we can see now crystal clear. It was not!

I think we need serious regulation. Regulation about trade, loan and interest. But this regulation also should let the market be decentralized. It is not easy, I can understand but we have to.

[tosmartak]

Has there ever been a time the bitcoin news media has been competent at what they do? I am not surprised, and it is not a new thing. Basically what they have always been good for is the spreading of FUD, and it seems that is their hobby in most cases. However, their theory is something we cannot obviously tell if it is for real or not. The market has been highly speculative, so in cases like this, i would not imagine the media not being used to want to generate more of it by some calibers.

[Wind_FURY]

Futures or no futures, I still firmly believe that Bitcoin will be priced in 6 digits after the next halving because of simple economics, " more demand, less supply", and technological merit.

[fabiorem]

I said that one year ago, but people said it was a "conspiracy theory".

When futures got announced, price started to climb. When CBOE was launched, it skyrocketed, and when CME came, it started falling.

I noticed that by the end of October 2017, posted on the forums, but people said it was just a theory.

Futures markets did the same with gold and silver. Its infinite fiat money being injected to bring valuable assets down. They keep doing that until regulators step in and put safeguards on the market, which for many is the ETF proposal. ETFs on gold and silver made these assets go up again.

[bbc.reporter]

@fabiorem. The people were scammed to buy bitcoins on the all time high and they are also being scammed again to sell on very low prices. Who said that only ICO pumpers know how to scam? There are also Wall Street futures pumpers hehehe.

[bbc.reporter]

This might not be a bitcoin article but it reveals how deep the corruption is among the big wigs in Wall Street and how they are in control of the regulators and the policy makers. Goldman Sachs is an institution that is using bitcoin to create another bubble and create another crisis after it, I reckon.

However, if you are a bitcoin speculator, the bubble ast year might only be a small drop compared to Goldman Sach's next bitcoin bubble and the dump will certainly hurt as much hehehe.



Of the myriad policy decisions that have brought us to our current precipice, from the signing of the North Atlantic Free Trade Agreement (NAFTA) to the invasion of Iraq and the gerrymandering of House districts across the country, few have proven as consequential as the demise of Glass-Steagall. Signed into law as the U.S.A. Banking Act of 1933, the legislation had been crucial to safeguarding the financial industry in the wake of the Great Depression. But with its repeal in 1999, the barriers separating commercial and investment banking collapsed, creating the preconditions for an economic crisis from whose shadow we have yet to emerge.

Carmen Segarra might have predicted as much. As an employee at the Federal Reserve in 2011, three years after the dissolution of Lehman Brothers, she witnessed the results of this deregulation firsthand. She chronicles the recklessness of institutions like Goldman Sachs and the stunning lengths the United States government went to to accommodate them, even as they authored one of the worst crashes in our nation’s history.

https://www.truthdig.com/articles/wall-streets-corruption-runs-deeper-than-you-can-fathom/

[STT]

Its not just that shorts exist, its that it allows big holders of BTC to hedge their BTC by taking part in futures.   At least one case I read was a big fund holding BTC took out a long contract for the next 12 months but also used this as an opportunity sell off a large part of the BTC stored.

The contract is like a kind of insurance, he is covered from that upside and disappointment by his investors but can also sell off the 'physical' BTC into market that has heavy demand still in play at ideal prices.   This is great for a large holding as he can balance his orders properly not have to struggle to match up to buyers when he is selling in a market declining.

The futures or shorts arent the negative but they do allow balance to occur which in this case is relieving pressure from the BTC price.   Its not the explanation for all of the decline and also people dont like the lower price maybe but every market needs to allow prices to move like this.   I think BTC would have destroyed itself if it had only continued upwards to even greater prices, people might not get this but the decline saves BTC long term imo

[gentlemand]

Futures or no futures, I still firmly believe that Bitcoin will be priced in 6 digits after the next halving because of simple economics, " more demand, less supply", and technological merit.

Simple economics don't really come into play here. If they did things may look extremely different. Since it's pure speculation is it not the case that pure emotion drives this? Apart from a small number of users there is no economic use in play here and those users are nobodies compared to the traders batting the price around.