Did Futures Markets Negatively Affect Bitcoin Price and the Entire Crypto Industry?



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Late last year, the cryptocurrency community highly anticipated a surge in bitcoin price after the launch of the bitcoin futures market operated by the Chicago Board Options Exchange (Cboe) and CME Group, two of the largest options exchanges in the global market.

Almost immediately after the entrance of Cboe and CME Group in the cryptocurrency market, the price of bitcoin started to surge rapidly. Within weeks, the price of bitcoin peaked at $19,000, surpassing $24,000 in South Korea.

Extreme Volatility

But, as it did on the upward movement, the price of bitcoin fell quickly from its peak at $19,000 to $6,000, experiencing the third worst correction in its history with a 72 percent decline from its all-time high. Currently, the price of bitcoin remains at $7,400, the price of bitcoin in early November.

The January correction of bitcoin has been brutal, and it sank the entire market with it. More or less, most cryptocurrencies in the market followed the price trend of bitcoin over the past few months and bitcoin has actually outperformed most cryptocurrencies in the market throughout 2018.

Cboe and CME launched their bitcoin futures market in the first week of December. Prior to the launch, CME chairman Leo Melamed confirmed the plans of CME to launch its bitcoin futures market as early as November. On November 7, as CCN reported, Melamed stated:

“That’s a very important step for bitcoin’s history…We will regulate, make bitcoin not wild, nor wilder. We’ll tame it into a regular type instrument of trade with rules.”

The optimism and enthusiasm displayed by both Cboe and CME executives led the cryptocurrency market to highly anticipate a short-term surge in the volumes and prices of cryptocurrencies. Within weeks, the price of bitcoin nearly tripled, and other cryptocurrencies like Ripple and Tron enjoyed a significant increase in value.

However, the cryptocurrency market and investors within it failed to acknowledge that prior to the futures market, the global cryptocurrency market wasn’t all that liquid, and daily trading volumes across most exchanges were relatively low. The low liquidity of the cryptocurrency market made it easier for retail traders and institutional investors in the public market to manipulate the prices of cryptocurrencies.

Earlier today, on March 29, the bitcoin futures market on both Cboe and CME options exchange saw record volumes. Yet, the price of bitcoin fell from $8,000 to $7,300. There has not been much interest in the cryptocurrency market from institutional investors and retail traders in the west, whereas in regions like Japan and South Korea, institutional investors have already started to invest in the market.

Cryptocurrency remittance firm Abra CEO Bill Barhydt stated:

“There really is zero large-scale institutional money from the west in crypto right now. That is happening in Japan. Once a large sizable chunk of Western institutional money starts to come in — watch out.”

Where is the Market Now?

The price of bitcoin is exactly where it was prior to the launch of the bitcoin futures market in November. One optimistic takeaway from the past 4 months could be that in comparison to October and November of 2017, volumes on cryptocurrency exchanges excluding the futures markets in the US have increased.

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