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.

Vitalik Buterin: If Bitcoin Is a Pocket Calculator, Ethereum Is a Smartphone

In a recent interview, while talking about the motivation behind Ethereum (ETH), the second most valuable cryptocurrency in the world, its creator Vitalik Buterin said that if you think of Bitcoin as a pocket calculator, then Ethereum is like a smartphone.

The Russian-Canadian programmer's comments during a video interview with Business Insider that was released on Thursday (February 28th).

Vitalik started by explaining how he got into the crypto space:

"So, I first got into the crypto space back when it was just called the Bitcoin space, around 2011. I thought it was something really interesting. I started getting into the community more and more. I co-founded Bitcoin Magazine."

Next, he explained that after doing some Bitcoin-related work for around two years, he eventually quit college/university to focus on Bitcoin full-time. A short time later, came the realization that there were more things you could do with blockchain technology than just using it to create a "single peer-to-peer currency." So, he came up with the main idea behind Ethereum, "this idea of a blockchain with a built-in programming language."

He then explained what was the biggest problem with Bitcoin that he was trying to solve with Ethereum:

"Just too limited functionality. Think of the difference between a pocket calculator and a smartphone, where a pocket calculator does one thing, and it does one thing well, but really people want to do these other things. And if you have a smartphone, then on the smartphone, you have a pocket calculator as an app, you have play music as an app, you have a web browser, and pretty much everything else. So, basically, taking that same idea of increasing the power of the system by making it more general-purpose, and applying it to blockchains."

On February 19th, as reported by CryptoGlobe, Vitalik revealed some details about his financial standing, including which cryptocurrencies he holds and his major corporate shareholdings, and these showed that the vast majority of his crypto holdings are in Ether (ETH).

Ethereum Foundation's Hudson Jameson made a post called "AMA about Ethereum Leadership and Accountability" on the "ethereum" subreddit. The purpose of this post was to encourage all those in a leadership position in the Ethereum community, especially the people who are "actively involved in protocol decision-making" to disclose which cryptoassets they hold and where their income comes in order for others to be able to see if there were any potential conflicts of interests.

 In this thread, Vitalik revealed the following information about his current financial standing:

  • "Non-ethereum-ecosystem tokens: BCH, BTC, DOGE, ZEC; total value < 10% the value of my ETH"
  • "Non-ETH ethereum ecosystem tokens: KNC, MKR, OMG, REP, total value <10% the value of my ETH"
  • "Significant corporate shareholdings: Clearmatics, Starkware"
  • "Revenue in the last 12 months other than ethereum foundation salary: a few advisor tokens (included in above)"

Vitalik also disclosed his non-financial interests: "friends in the ecosystems represented by the above projects, as well as some non-token ethereum ecosystem orgs (eg. L4, Plasma Group, EthGlobal, EDCON) and non-token non-ethereum orgs (mainly professional cryptography and economics circles)."

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