Let The Institutional Money Flow Into Crypto, They Said. It Will Be Fun, They Said...
I still remember the enthusiasm with which the crypto market greeted the launch of the Bitcoin futures, in December last year. I confess I was one of the enthusiast guys, although, somewhere in the back of my mind, there was still a voice whispering incessantly that, wherever WallStreet sets their foot in, no grass will ever grow again.
Since December 2017, Bitcoin price went from 20k to 6.5k.
And now, all the clues are leading to a very significant root cause: the Bitcoin futures prices.
Like I already told you more than one hundred times, in my daily market snapshots, I'm not a trader. I am just a crypto enthusiast and I don't make any risky moves, nor do I brag that I did any, but actually didn't. When analyzing a potential investment in a crypto project (being it money, time, or resources) I rely a lot on personal experience (being my own boss for almost 20 years kinda helps) and, to a certain extent, on intuition.
But when my intuition aligns with what people way more clever than me are saying, I kinda feel relieved. Like in this case, for instance, with this Bitcoin futures thing.
In an interview for Bloomberg a couple a days ago, Tom Lee from Fundstrat, a popular crypto supporter, declared that Bitcoin price plunges are synchronized with, wait for it, wait for it, ta-daa: "Bitcoin futures price expiration".
Here's the relevant piece from the interview:
If a trader is long Bitcoin and short the futures, as contracts move closer to expiry, holders may sell a large share of the coins at volume weighted average price (VWAP) to minimize tracking error. But near expiration, may sell the remaining Bitcoin, causing the price to drop, leaving the short position in the futures to close "with a handsome profit."
You don't have to be a financial genius to get the gist of it, even if the technical terms are confusing: "there's more money to be made by shorting Bitcoin if it falls from 20k to 6.6k, then going long on it if it goes from 6.5k to 7.5k".
And that's because, until the existence of futures, there wasn't any way to short the Bitcoin.
There you go, now you have it, and there are a lot of sharks out there playing with it.
What's the consequence of all this, you asked?
Well, it is my understanding that this trend will continue for as long as there will be more money to be made in shorts, than in longs. That means big institutional whales will keep accumulating until they gathered as much supply as they can, and, then and only then, a new bull run will start. Only this time around, the biggest supply will be in the hands of institutional traders, not individuals. Or, to be clearer, anyone who's panic selling will have their assets given away basically for free.
How long this will take? I have no idea, because there are so many parameters. But probably at the end of fall, beginning of winter, we will witness the beginning of another bull run.
And this one will probably be an order of magnitude higher than he last one, in December last year.
Once again, I'm not a trader, this is not trading advice, and you've been warned. Just sayin'...
I'm a serial entrepreneur, blogger and ultrarunner. You can find me mainly on my blog at Dragos Roua where I write about productivity, business, relationships and running. Here on Steemit you may stay updated by following me @dragosroua.
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In the long run banks are manipulating the crypto prices which in turn may likely be the demise of any chance bitcoin can be worth a ton. Just thinking if banks are shorting to weed out the weak hands sooner or later they may have accumulated enough coins in circulation to go beyond manipulating prices with futures. This seems to be the first taste of how banks can ruin crypto.
The 20K was also "investor speculation", so I guess it cancels out?
But just you wait, the manipulating is coming back for an uptrend, maybe as a christmas present?
I think the price will fall to ~4K before that though.
Might be. $4k is a bit aggressive, I expect to bounce before reaching that, but markets are always right.
I think 4K is conservative.
Simple extrapolation: In the past the price always dropped by ~80% of the last high. And this one was a really big high. (Too bad I didnt found the article on the price manipulations again, it was just a few days ago)
That is purely true because future market always settle a price and do not allow intense upward movement or downward movement, the price always stays in a broader range, that is what future market always do. So in my opinion we may not see bitcoin price at 20K at least for next 2/3 years. Moreover i always of the apprehension that whatever asset it is it should always priced as per its utility value and speculation is a kind of gamble and often deviate from the parity value.
I agree, futures have introduced shorting to the market but Bitcoin price is reaching a level where mining is starting to stop being profitable. Big mining farms are also part of the game, some of them are even big trading whales, that is one of the reasons it seems the price might have reached its low, there is just no one wanting to buy anymore and that is what the volume is showing.
Hopefully, we will be facing a final uptrend as soon as institutional money decides it is time to play long to earn money again.
My question is why do we need to have Futures on Bitcoin ?
Betting on the actual currency ( buying/holding/selling BTC itself) is one thing but why do we need to have a bet on the bet?
No doubt WallStreet is like termite which eats any system from the inside.
oh man I can not ever eat another pizza again without thinking of this. Totally engraved in my brain. Yikes.
Great analysis. I feel the same, i'm expecting to reach $5000 and then i will decide if i buy some bitcoin or not. This article is also quite relevant and explains the price of bitcoin in relation to the "futures market":https://cointelegraph.com/news/what-is-going-on-with-the-crypto-markets-experts-share-opinions
@dragosroua Do you believe SBD/Steem will shortly be 1:1 or even 1 SBD will be worth more than 1 Steem? I have invested in steem a couple of days ago and i was thinking of exchanging it for SBD. The SBD/STEEM (debt/equity) ratio stands at 3.34% and if it reacher 10% i believe payouts will be only in steem and not SBD: http://www.steemreports.com/steem-sbd-info/
Agreed:) But BTC seems to be pretty antifragile in nature, so we are probably going to have an insanee market after the futures came: When the market is calm (no FUD, FOMO etc.) BTC is shorted into oblivion lol, and when it is a lot of news, FOMO and FUD, the will be short squeezes with tremendous gain. Needless to say, cryptos are probably dead as means of everyday payment. The market is going sideways at the moment, could be the start of a bull run.
I would like to add that, every 10 minutes the miners who are securing the network, and have electric bills to pay, are creating a new 12.5 BTC every block this actually averages between 8-10 mins, with the constant addition of hashing power on the network. That is 12.5 BTC that needs to be sold at cost to cover running cost to maintain the network. As price of BTC drops, it will be come less and less profitable for the miners to mine. This will start to cause the hash rate to decrease as they shut off there machines. This causes the people who are still mining to get more coins but the price is just less. so the price will fluctuate between the point of profit for mining and the difficulty change rate. This happens about every 2 weeks. Once the demand for more coins goes up, a new hype cycle, or the halving, witch should occur in the latter half of 2019 but is scheduled for 2020, This is due to a way in which the miners, pre-mine the next block, resulting in empty blocks. But I believe we are nearing the end of this bear trend. with a return of the next hype cycle and the influx of more money, this being with the new proposed ETFs. They are looking very promising and should be approved by the SEC.
yup, i think so too. its easy to initiate a short position on futures with less cash (margin trading) and then dump large quantities of bitcoin close to expiry. since liquidity is thin, the drop in price is massive and people also join you as they are panic selling. you cover your bitcoin lower and futures give you a handsome profit. its absolutely brilliant.
i would say that the other news coming on bitcoin, about regulation, custody is very relevant and will lead to a bull run sometime soon. and this time if it comes with more adoption then we are surely looking at a price of 60k to 100k as the xperts have been predicting. i am not a trader either, but as an investor, i believe, the correction is overdone and fundamentally, bitcoin is worth much more than 20k. i am there for the long term and will only sell out once i feel adoption has reached its peak for the time being and i need to wait for more clarity to be exposed to bitcoin.
Interesting article @dragosroua. I'll bide my time until the end of the year then. Maybe buy me a bit of Steem if the price keeps dropping! 😁