martes 29 mayo, 2018

Federal Reserve report shows that Bitcoin futures trading dragged its prices down

Bitcoin rose at a massive price to almost $ 20,000 followed by a decline that was directly related to the launch of a futures market, according to a study by the San Francisco Federal Reserve published on Monday, May 7, 2018.

In the document signed by Galina Hale, Arvind Krishnamurthy, Marianna Kudlyak and Patrick Shultz, a reference is made on the evolution of the cryptocurrency’s price behavior since its implementation in 2009 until mid-2017, where the average of its prices ranged from the order of $ 4000. Likewise, the researchers declare in the document that it was not a coincidence to see a rapid increase and subsequent fall in the price after the introduction of futures. They indicate that it is consistent with the trading behavior that typically accompanies the introduction of futures markets for an asset.

It is worth remembering that the Chicago Mercantile Exchange (CME) in December 2017 introduced Bitcoin futures trading. With the announcement, rising Bitcoin prices were aligned.

That same day, Bitcoin peaked at $ 19,783. The Chicago Board Options Exchange (CBOE) also opened a futures market a week earlier, but trading there was sparse, the document said.

The researchers added:

It was extremely difficult, if not impossible, to bet on the decline in bitcoin prices, until futures existed. As optimistic investors continued to rise, the cryptocurrency rose more than 1,300% in 2017.

Meanwhile, there was no support for the pessimists’ belief that the price of Bitcoin would collapse. With the introduction of bitcoin futures, pessimists could bet on a bitcoin price drop, buying and selling contracts with a lower delivery price in the future than the spot price.

The figure attached in the original document shows the three largest bitcoin price reductions in 2017. The researchers scaled the three series so that the maximum values are equal to 100 on peak days of events. Therefore, each point in the figure can be interpreted as a percentage of the maximum value. The graph can clarify the price drop after the issuance of bitcoin futures in the CME (red line).

Furthermore, the previous two price declines returned to pre-collapse levels in about a month. At the end of April, the price of bitcoin had not returned to its peak prior to the future spot.


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