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.

Bitcoin From the 2016 Bitfinex Hack Mysteriously on the Move Again

Little over 30 bitcoins stolen from the prominent cryptocurrency exchange Bitfinex back in 2016 have mysteriously started moving once again, even after the arrest of two individuals allegedly involved in the exchange’s security breach.

According to Whale Alert, a large transaction monitor, an initial transaction of 28.39 BTC was made from a wallet associated with the 2016 Bitfinex hack before a second transaction of 2.27 BTC was made. Both went to unknown wallets, with the total amount being transferred coming close to $300,000.

The hackers often move their funds around, presumably in an attempt to launder them so they can cash out. In June 2019, they moved over 172 BTC over a total of five transactions to unknown addresses. In August, around 30.6 BTC, then worth over $350,000, were moved as well.

In total, the hackers stole nearly 120,000 bitcoins from the popular cryptocurrency exchange in 2016. At the time, one bitcoin was trading for around $600, which means they stole roughly $72 million. As the price of the flagship cryptocurrency skyrocketed since then, the 120,000 BTC are now worth over $1 billion.

Taking this into account users on social media started predicting a price cash, as if the hackers were able to cash all of their funds out the price of BTC would certainly drop significantly. To cash out, however, they have to find a way to launder the funds – a challenge at a time in which every liquid cryptocurrency exchange enforces know-your-customer (KYC) checks.

Bitcoin from the 2016 Bitfinex hack moving may be surprising, as Israeli police last year arrested two brothers allegedly involved in the security breach. It’s worth pointing out, however, in the UNUS SED LEO token whitepaper the exchange appeared to give the hackers a chance to return their funds and keep a specific percentage “as a reward for collaborating in finally resolving” the issue.

Referring to past transactions Anneka Dew, Bitfinex’s marketing director, noted they weren’t related to the procedure outlined in the token’s whitepaper.

Featured image via Pixabay.