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.

Weekly Newsletter

AntPool Mining Pool Attempts to Mine Rogue Bitcoin Block

Neil Dennis

A rogue block on the Bitcoin blockchain was identified on Thursday morning, but it remains unclear whether it was a fault in the software, or a more malicious motive.

At block height 584,802, bitcoin miner AntPool attempted to publish an invalid block on the network. The error was identified by all eight validation nodes at forkmonitor.info.

Transaction Fees but No Transactions

The erroneous block was submitted at 14.35:27 UTC, 21 seconds after the previous block and contained no transactions, although the coinbase value of the block suggested it included transaction fees. 

BitMEX Research noted that the invalid block submission coincided with a drop in the price of bitcoin, but admitted it was probably just a coincidence.

AntPool eventually mined the valid block number 584,802, suggesting an error in the software had been responsible for its invalid submission. However, adding to the confusion of the episode, the valid block number 584,802 contained a total of 2,455 transactions, but fees of just 0.64968988 - only about 50% of the attempted charge of the invalid block.

Bug to Blame?

An expensive mistake, then. Jameson Lopp, a blockchain developer, suggested a "bug in the block template generator" was responsible.

This leaves the question hanging: could we be seeing more episodes of this kind? AntPool declined to comment or make a statement about the incident.