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 Proponents 'Delusional' in Thinking BTC Will Beat Dow to New All-Time High, Peter Schiff Says

Francisco Memoria

Gold bug and cryptocurrency critic Peter Schiff has said bitcoin proponents are “delusional” and cautioned them that “hope is never a good investment strategy.”

Schiff’s comments came in response to a poll published by Quantum Economics founder Mati Greenspan, which asked Twitter users to choose one they believed would hit a new all-time high first, picking between bitcoin, gold, the Dow Jones, or another asset or index.

Out of 2,327 votes, 42.1% revealed they believe bitcoin will hit a new all-time high before gold and the Dow Jones, while 27.3% chose gold over the other two, and only 22.6% chose the Dow Jones.  Schiff pointed to the poll saying it shows how “delusional bitcoin bugs are.”

As CryptoGlobe recently reported, Schiff has also implied he believes bitcoin is unlikely to ever reach $25,000, a mark above its all-time high near $20,000, in response to another poll on the microblogging platform. He added that no BTC price point would see him “panic-buy” the cryptocurrency.

Notably Greenspan, who created the poll, also revealed he doesn’t believe bitcoin will hit a new all-time high first. The cryptocurrency is trading at about $9,150, and would need to appreciate over 100% to surpass its all-time high, while gold is at $1,770, and only needs to appreciate 5.6% to hit its $1870 all-time high, seen in September 2011.

The Dow Jones is at 25,959, down from its all-time high of 29,390 points, and would need to appreciate little under 15% to hit its new high. Responding to Greenspan’s surprise, some noted that most respondents may not be aware of how close the precious metal is to its all-time high.

It’s worth noting Schiff has earlier this year predicted bitcoin will “collapse,” after admitting he likes riling up the cryptocurrency community on Twitter.

Featured image via Unsplash.