Last year around this time, bitcoin’s price hit its peak near $20,000. Bitcoin reached all-time price highs on the same day the Chicago Mercantile Exchange (CME) launched its bitcoin futures. Coincidence? Evidence may show otherwise.
Popular YouTuber Cameron from Crypto Daily recently published a video correlating mainstream financial market bitcoin futures with bitcoin’s subsequent price collapse.
According to coinmarketcap.com data, bitcoin hit its all-time price high of $19,769.90 on December 17, 2017. This is the same day the CME launched its bitcoin futures trading product. Since then, bitcoin has seen its price fall more than 80 percent, currently sitting at about $3,545 on Blockmodo at the time of this writing.
Referencing a Reddit post by “Turtlecane” as source material for the video, Cameron mentioned “paper bitcoins” as a culprit for bitcoin’s price collapse.
(It is important to note that the Chicago Board Options Exchange also released its bitcoin futures trading product a week before the CME, adding to the paper bitcoin prevalence.)
CME and CBOE futures products are cash-settled. Put simply, this means that trading positions are paid out in cash and not in bitcoin. The CME and CBOE do not need any actual bitcoin in their possession for the system to work.
So people can essentially trade bitcoin’s price action without ever needing to touch the actual bitcoin supply. Bitcoin’s limited 21 million coin supply is a significant factor in its price valuation. There are far more people in the world than there are bitcoin available.
But if people can gain financial exposure to bitcoin’s price action, via CME and CBOE futures products without having to buy physical bitcoin, then it decreases bitcoin’s overall demand.
“Each paper Bitcoin issued on CME diverts demand away from the Bitcoin spot market, lowering Bitcoin’s price, and also increases the total supply of Bitcoin beyond the actual Bitcoins in existence,” Turtlecane explained in his Reddit post.
“CME Bitcoin futures contracts are 5 Bitcoins each, and settled once a month. The volume of Bitcoin futures has been rapidly increasing, as Bitcoin dives lower and lower, and this is not a coincidence. The higher the volume of Bitcoin futures, the more paper Bitcoins that are printed.”
Turtlecane explained in a previous article the same market effect occurred when Comex (a branch of the CME) introduced gold futures back in 1974.
Gold is also of scarce supply. Over the last seven years or so, gold futures, ETFs, and other paper-backed gold products have picked up speed, causing a similar effect seen in bitcoin. “There is 360 times more paper gold printed than the physical gold backing the contracts,” Turtlecane mentioned.
Cameron stated a logical overall conclusion to bitcoin’s crash near the end of his video. Bitcoin may have crashed due to several different causes, matched with bad timing.
Many crypto speculators have been anxiously awaiting the arrival of the Intercontinental Exchange’s (ICE) Bakkt crypto trading platform. Unlike CME and CBOE, Bakkt futures trading will be settled in crypto assets.
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