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.

Tim Draper Explains Why Buffett Is Bashing Bitcoin, CZ Invites Him to Lunch

Siamak Masnavi

On Monday (February 24), legendary American tech investor Tim Draper spoke about why he recently moved most of his investment funds into crypto, why he is still bullish on Bitcoin and confident about his $250 price prediction, and why he thinks billionaire investor Warren Buffett is so critical of Bitcoin.

Draper, a co-founder of venture capital firm Draper Fisher Jurvetson (DFJ) and an early investor in quite a few unicorns, including Hotmail, Skype, Tesla, SpaceX, and Twitter, was being interviewed on CNBC's "Squawk Alley" at a time when U.S. stocks were down (due to concerns about the COVID-19 pandemic) and Bitcoin was trading around $9,700.

Principal anchor Carl Quintanilla started the interview by asking Draper about his thoughts on the valuations of U.S. stocks and whether thery were too frothy.

Draper Replied:

"Actually, I got to admit [that] I have been out of the market for about six months. It felt pretty lofty for me, and I kind of moved most of my stuff to crypto and Bitcoin. I think that's kind of a safe haven now, and I think this correction may end up being more than that, but I think we're in for a kind of an interesting ride."

Quintanilla then wanted to know what pushed Draper out of stocks six months ago.

Draper said:

"Well, it just got very frothy -- the market got too excited and Uber drivers were doing day trading, and you know all the signs were there. So, I think it was time.

"I think it's a good time to be in the private markets -- that's what I do, and so at Draper Associates, we're very happy that we're continuing to be in the private markets, but I think in the public markets. it just got frothy and then there's the fear of socialism.

"I mean, nobody wants socialism. Capitalism may only work 70% of the time, but socialism has never worked in the history of man. So, I don't understand why there's this move, but I think there's some fear there, and I think there's some interesting things coming."

Co-anchor Morgan Brennan then asked Draper where he saw the Bitcoin going from here.

Draper answered:

"I'm still holding to my prediction. I think Bitcoin in 2022, or at the beginning of 2023, will hit $250,000, and that is a big move from where it is here. And I think that the reason is that Bitcoin will be the currency of choice.

Right now, you have this choice, and Bitcoin is not as easy to move around, but eventually it will be, and then you'll have a choice, and you'll say 'hey do I want to pay the banks 2.5 to 4 percent every time I swipe my credit card or do I want a currency that's frictionless, open, transparent, global, and not tied to any political force?'.

"At some point people are going to make that switch and Bitcoin is going to be the big winner."

Another co-anchor, Jon Fortt, wanted to know how much of Draper's money was invested in Bitcoin, but Draper did want to give him a specific number, and he just said "a lot of it." 

He then added:

"I think the world is going to be much better off because [of] this decentralized movement, and it's not just Bitcoin.

Bitcoin is decentralized currency, but it's decentralized everything, and I think that the some of the politicians are clinging to the past and clinging to their tribalism, but most of the best politicians are moving toward this new world that's global and open and transparent.

I think that's going to be the new world. I think it'll be a more beautiful, more loving, and more peaceful world, but you're going to see a lot of tension on the way to getting to that world."

Draper was also asked by Quintanilla to comment on Warren Buffett's interview on the same program earlier in the day, when he said that cryptocurrencies have "no value" and "don't produce anything" and that people who invest in them are essentially believers in The Greater Fool Theory. Buffett also said in the same interview that he would never own any crypto (even though TRON Foundation CEO Justin Sun has claimed that during a recent dinner, he gave Buffett as gifts two Samsung Galaxy Fold phones containing Bitcoin and a few other cryptocurrencies).

Draper had this to say:

"That is hilarious. 50% of his holdings are banks and insurance companies. They're not gonna do well in this new decentralized economy.

Of course, he is not going to like it. He sees a huge threat to his holdings -- his holdings are more than 50 percent in banks and insurance companies [at Berkshire Hathaway]."

After seeing this interview, Binance Co-Founder and CEO Changpeng Zhao (aka "CZ") went on Twitter to compliment Draper on his excellent understanding of crypto, and invited him to lunch so that they could have a chance to speak on this topic:

Last month, Draper was asked during an interview on FOX Business to give his "best advice" to millennials when it comes to investing for retirement.

He offered this advice:

"Go Bitcoin, go decentralized, start building your empire in the new model that doesn't require that you to have to pay two and a half to four percent every time you swipe your credit card to some bank or another and doesn't require all the heavy regulations we have that are all tied to the dollar... I think if you really want it to work, I think you go Bitcoin or crypto or the new way... I would focus on the future..."