Bitcoin Futures to Blame for Crypto Market’s “Gut-Wrenching” Drop, Says Fundstrat Analyst Tom Lee

Omar Faridi
  • Fundstrat analyst Tom Lee wrote that bitcoin futures reaching their expiration dates are to blame for the cryptocurrency market’s recent drop.
  • The data science expert believes that institutional investors have not made substantial investments in the cryptocurrency market due to a lack of proper tools.

Fundstrat Global Advisors co-founder Thomas Lee recently stated that the sharp drop in bitcoin’s price may be linked to the expiration of bitcoin futures contracts. According to Lee, the “significant volatility” of the flagship cryptocurrency could be due to CME and Cboe futures having reached their expiration dates.

Moreover, the data science expert believes that while technical issues and market sentiment have been “awful”, the expiration of bitcoin futures might have played a bigger role in the decline of bitcoin’s market capitalization. The Fundstrat head of research said:

“Bitcoin sees dramatic price changes around CBOE futures expirations. We compiled some of the data and this indeed seems to be true.”

Tom Lee

Lee pointed out that since Cboe’s bitcoin futures contractswere introduced in December 2017, they have expired six times, with the most recent one expiring on June 13. Citing Raptor Capital Management crypto investor Justin Saslaw’s analysis, Lee thinks that the drop in bitcoin’s price can be attributed to the expiration of bitcoin futures contracts.

In his report, the Fundstrat analyst notes that bitcoin's price fell approximately 18 percent 10 days prior to the financial products’ expiration, followed by a recovery felt 6 days after expiration.

“Handsome Profits” Shorting BTC Futures

Lee noted that should people short bitcoin futures as they approach their expiration date and go long on the cryptocurrency, investors could sell a big portion of their holdings at volume-weighted average price (VWAP) with a minimal tracking error.

He also added that the bitcoinsleft could be sold as the expiration date approaches, which would result in declining prices. This way, those who short futures could end up “with a handsome profit”, Lee says.

Commenting on the current cryptocurrency market, the Fundstrat analyst stated that tools to attract institutional investors have not yet been properly developed, which has kept them from investing. He also wrote that numerous initial coin offerings (ICOs) and large amounts of cryptocurrency earned by miners, along with taxed capital gains, have resulted in a significantly greater net supply this year. Notably, Lee has in the past stated he sees bitcoin hit $25,000 by the end of the year, and $91,000 by March 2020.

Interestingly, Lee’s report has come at a time when the US Commodity Futures Trading Commission (CFTC) launched an investigation into four large cryptocurrency exchanges: Coinbase, Kraken, itBit, and Bitstamp.

All four exchanges have been sharing their financial data with the CME Group, which introduced BTC futures in December 2017. The CFTC probe is reportedly due to allegations regarding potential market manipulation.

1.9 Million U.K. Residents Own Cryptocurrencies, FCA Research Finds

Research conducted by the United Kingdom’s Financial Conduct Authority (FCA) has found that 1.9 million U.K. residents currently own cryptocurrencies, while 2.6 million are estimated to have bought crypto “at some point.”

The research report published by the FCA into how consumers interact with cryptocurrency markets in the U.K. found that 3.86% of the country’s general adult population owns cryptocurrencies, as its adult population is estimated to be of approximately 50 million people.

To the FCA, there was a “statistically significant increase” in cryptocurrency holders throughout the UK as last year roughly 3% of the country’s adult population owned crypto at some point, and is now up to 5.35%. The rise brings to the total number of U.K. residents who ever held crypto up to 2.6 million, up from 1.5 million.

While the amount of adults owning crypto is relatively small compared to the total adult population, industry awareness appears to have hit a new high, as 73% of polled adults revealed they have heard of cryptocurrencies, up from 42% last year.

According to the FCA’s research, however, 75% of the 1.9 million people that currently hold crypto in the U.K. have less than £1,000 (around $1,230) in the space, with 83% of them buying their assets via exchanges that are not based in the U.K. Those who do buy crypto are nevertheless aware of the risks, per the FCA.

The report notes most “seem to understand the risks associated with the lack of protections, the high volatility of the product and have some understanding of the underlying technology. The report adds this isn’t the case for all:

Nevertheless, the lack of such knowledge among some presents potential consumer harm to consumers. 11% of current and previous cryptocurrency owners thought they were protected. This amounts to approximately 300,000 adults.

The most common reason for U.K. consumers to purchase crypto, it adds, was as a “gamble that could make or lose money.”

Crypto Ads' Influence 

The FCA’s report also found that 45% of current and former cryptocurrency holders had seen cryptocurrency-related ads. A total of 35%, around 400,000 people, said the crypto-related ads made them more likely to invest in the space.

Overall, 16% of those who have had or currently have cryptocurrencies revealed they have been influenced by crypto-related ads. The report, however, also claims the “media’s role in raising consumer awareness about cryptocurrencies has risen.”

As CryptoGlobe reported earlier this year, the FCA added nine new financial crypto companies to its warning list, as it has been ramping up efforts to keep consumers safe even if they are investing in the crypto space. Cryptocurrencies are not covered by consumer protections.

Featured image via Pixabay.