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.

Cryptocurrency Markets Rally After News of Record Bitcoin Futures Volume, Microsoft Project

The spate of auspicious news has continued over the past 24 hours in the crypto space. Among the leading stories was a partnership between Gemini and Flexa to launch a crypto payment solution that will be accepted at various world-renowned retailers. Derivatives exchange CME Group reported an all-time high record for daily bitcoin futures volume. Microsoft unveiled an early preview of a decentralized identifier network built atop the Bitcoin blockchain.

The cryptocurrency market responded favourably to what was arguably the industry’s best news day in recent memory. At the time of writing, bitcoin (BTC) and ether (ETH) are trading at $8,209.62 (+16.78%) and $212.48 (+13.18%), respectively. The MVIS CryptoCompare Digital Assets 10 Index is currently tracking at 3,643.41, a 5.45% rise over the past 24 hours.

Flexa, Gemini Partner on Solution to Bring Bitcoin to Major Retailers

Crypto exchange and custodian Gemini partnered with Flexa to launch a real-time cryptocurrency payment system for consumers. With the use of Flexa’s SPEDN mobile wallet app, users can pay for a wide range of goods and services using either bitcoin (BTC), ether (ETH), bitcoin cash (BCH), or Gemini dollars (GUSD). Among the fifteen merchant partners already integrated with Flexa’s self-named payment network are Amazon-owned Whole Foods, GameStop, Barnes & Noble, and Nordstrom. As another outcome of the partnership, Gemini will custody all cryptocurrency deposited on the SPEDN mobile app.

CME Group Celebrates Record Bitcoin Future Volumes

CME Group, the largest options and futures exchange in the world, reported its bitcoin futures product reached “an all-time record high of 33.7K contracts on May 13 (168K equivalent bitcoin), up nearly 50% from the last record of 22.5K contracts on April 4.” According to exchange volume data from Bitwise, CME Group’s daily bitcoin futures volume is, at the time of writing, $1.32 billion; a total slightly greater than the combined 24-hour trading volumes of Binance and Coinbase.

Microsoft Previews Bitcoin-Based Decentralized Identifier Network

Microsoft announced on Monday it is test-running a decentralized identifier (DID) network built atop the Bitcoin blockchain. The open-source project, known as ‘Ion’, will focus on developing protocols which allow different networks to communicate with each other, according to an announcement by the vice president of program management for Microsoft Identity Division, Alex Simons.