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.

Malaysian Crypto-Powered City to Attract 3 Million Tourists

Malacca City, the capital of the Malaysian state of Malacca, has reportedly become one of the world’s first regions that’s being referred to as a “crypto city.” Notably, Malacca City is expected to attract approximately 3 million tourists per year. This, according to recent report from Bloxlive.tv, which revealed that visitors will be able to exchange fiat currencies for digital currencies “upon arrival.”

“Revolutionizing Economies With Crypto”

Alternatively, tourists visiting Malacca City will be able to use their own “virtual funds.” However, all cryptocurrencies “must be traded into the city’s virtual asset” which is referred to as the “DMI Coin.” According to the report, tourists have the option of using various applications to pay for goods and services within Malacca City.

Interestingly, the Chinese government is reportedly backing the development of the town, in order to “make it a blockchain tourist capital.” Currently, it seems that Malacca City’s crypto project is in its initial stages of development.

It may be considered just a proof of concept (PoC) at this point which involves experimenting with “crypto as a workable monetary system or it could be a decentralized tourism gimmick [and only] time will tell,” Bloxlive.tv noted.

Norwegian Town Also Experimenting With Crypto

As mentioned in Bloxlive.tv’s video, Malacca City is “not the only city betting on crypto to revolutionize its economy.”

For example, Liberstad, a Norwegian town, has started to develop its own “virtual asset ecosystem.” Liberstad’s community reportedly uses a crypto called “City Coin” to pay for everyday purchases within the city.

Dubai To Use Blockchain For 50% Of Transactions By 2021

The Middle Eastern city of Dubai, which is considered to be United Arab Emirates’ business hub, has also been planning to adopt crypto and distributed ledger technology (DLT) on a large scale.

In May 2018, Dubai’s government announced that it would use blockchain technology for approximately 50% of its transactions by 2021. As confirmed by Sheikh Mohammed bin Rashid Al Maktoum (at that time), the vice president and prime minister of the UAE, Dubai’s wide-scale adoption of blockchain tech is part of its ongoing technological modernization project called “Smart Dubai.”