According to Thomas Lee, Fundstrat Head of Research, the recent decline in Bitcoin price is likely the result of the expiration of Bitcoin futures.
Lee explained that the “gut wrenching” weakness in Bitcoin, which dropped upwards of 20% earlier this week, is the result of futures contracts expiring. Lee said the “significant volatility” is one of six expirations of Bitcoin that have happened since CBOE launched its futures contracts in December 2017.
“Bitcoin sees dramatic price changes around CBOE futures expirations…We compiled some of the data and this indeed seems to be true.”
According to him, Bitcoin usually sees a drop of around 18% in 10 days before futures expiration, with prices generally recovering by six days afterward. Lee said that if a trader is long on Bitcoin and short the futures, holders may sell large shares of BTC at the volume weighted average price as contracts move closer to expiring.
Lee also noted a low amount of investment in crypto markets this year, claiming that there’s more net supply this year amid initial coin offerings (ICOs), mining rewards, and capital gains taxes.
Recently, US Commodity Futures Trading Commission (CFTC) has launched a probe into four major crypto exchanges Bitstamp, Coinbase, itBit, and Kraken that have been providing data for CME Group, which launched Bitcoin futures trading in December 2017.
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