There appears to be a connection between the expiry dates of CME bitcoin futures contracts and the falling price of bitcoin, but Is this foul play, or simple coincidence?
This week, the price of BTC markets witnessed a sizable $700 drop, wiping almost $10 billion off of the flagship cryptocurrency's total value; right on cue for the expiration of the Chicago Mercantile Exchange’s bitcoin futures contracts.
While at first, it may seem purely coincidental, suspicions arise with the realization that this isn’t the first time a bitcoin dump has corresponded with the expiration of the Bitcoin futures.
Back in July, several days before the derivative’s expiration, turbulence and volatility struck bitcoin's price, with BTC falling around 13% in the week leading up to the expiry date. Moreover, according to CryptoCompare data. Historical data proves that the price of BTC falls an average of 7.89% in the five days prior to contract expiration.
This phenomenon has become so prolific that it’s almost an accepted part of trading bitcoin, with crypto traders bracing themselves for an adverse market reaction, days before they occur.
**checks calendar**— Josh Olszewicz (@CarpeNoctom) August 27, 2019
until the bitter end it is then
(aka fri) pic.twitter.com/6fjdHG0jCJ
Manipulation or Coincidence?
It’s perhaps important to note that speculation surrounding these allegedly manipulative practices is just that, speculation. Besides the plethora of data that appears to point to some fairly dodgy dealings, no evidence has proven the rumors true; as they say, correlation does not imply causation.
Having said this, for some time now Trustnodes has been following this saga of supposed chicanery; producing an almost word-for-word article each month on the dubious nature of the futures expiration date, and their connection to bitcoin’s price action.
Within its most recent iteration, the publication directly addresses the reasons behind the potential deceitfulness. The article posits that the manipulation of the CME’s bitcoin futures is a ploy from Wall Street traders to keep the price of BTC subdued, while also scalping some dirty profit.
In this scenario, shorted CME contracts are hedged alongside a physical purchase of bitcoin, which cancel each other out; come expiration week, the BTC is sold, which lowers the spot price of bitcoin, and the short CME contract accrues a profit. The publication concludes:
That would have the effect of keeping the price down, especially if you short just before you sell the BTC, which would be obvious manipulation.
Recording Breaking Volumes
Regardless of the accusations of underhandedness levied against them, the CME bitcoin futures contracts continue to proliferate. Forbes reports that the contracts are seeing record levels of activity, with an average of $370 million being traded per day. According to CME Group managing director Tim McCourt, this uptake in interest could indicate an increased demand for crypto-assets in general:
This is an exciting time for bitcoin futures, as well as for cryptocurrency assets … There is a lot of broad investor interest in cryptocurrency, as well as growing interest in a variety of applications for cryptocurrencies and blockchain technology. It will be interesting to see how this new market continues to grow and scale.