BTC Futures = Price Manipulation?
December 17th, 2017 marked the highest recorded price for bitcoin of approximately $19,783. This was a period of hope, joy, and excitement for the cryptocurrency and blockchain community. To the moon was the sentiment of many investors and then out of nowhere, the seemingly impossible happened.
The price began to tumble…
One Week Earlier…
During the run-up of the BTC price rally in December 2017, an important and often underestimated event took place - the Chicago Board Options Exchange (CBOE) began offering Bitcoin futures at 5 pm CT on December 10, 2017.
A week later the price of Bitcoin plummeted and the price has yet to recover.
It’s Just Conspiracy, Right?
Is it possible there is a relationship between the BTC price drop and trading of BTC Futures? To answer this, we need to first understand what futures are and how they work.
The Origins of the Futures Markets
Our earliest written records of futures trading come from Aristotle in his book Politics. Here he tells the story of the philosopher Thales who was confident in his ability to predict future olive crop yields.
Thales was so confident in his predictive abilities that when he believed the harvest would be good, he made agreements with local olive-press owners to give him exclusive use of their olive press at a future date in exchange for an agreed-upon price today.
Since the olive-press owners were willing to hedge a guaranteed amount to be paid verse the possibility of a poor (or unknown) yield they agreed to his terms.
Today, the futures market works very similarly as described in Aristotle’s Politics. Many farmers and commodity producers still rely on the futures market to hedge against unknown future commodity prices.
As long as there has been a futures market, there have been people trying to profit from it. One such popular and an age-old technique and suspected to be used in BTC futures is known as “banging the close”.
As defined by the US Commodity Trading Commission:
Banging the Close:
A manipulative or disruptive trading practice whereby a trader buys or sells a large number of futures contracts during the closing period of a futures contract (that is, the period during which the futures settlement price is determined) in order to benefit an even larger position in an option, swap, or other derivative that is cash settled based on the futures settlement price on that day.
To use Bitcoin as an example, an investor could potentially manipulate the market price for Bitcoin (temporarily) just at closing time to benefit from a larger position (profit).
Bitcoin is a perfect vehicle for this type of manipulation because it is easily susceptible to high market volatility, physiological manipulation best of all for the perpetrators its anonymous so conspirators are difficult if not impossible to track.
The Future for Cryptocurrency
Lest we forget Bitcoin is just 10 years old and every day, continually it has been under attack. It’s the largest online financial target with a market capitalization of almost $200 billion dollars and is and will always be a target for manipulation.
There is no doubt various degrees and types of manipulation and attacks taking place, both within the BTC futures market and in the regular markets.
Everyday Bitcoin and is being attacked and every day this technology fights back. Whether the futures market lay blame to the sharp tumble in price from the December 2018 high or whether it’s from a litany of other attacks — what is important it that Bitcoin has yet to lose a single battle.
In these markets, there will be manipulators. And there will be manipulators manipulating the manipulators. There are already automated trading bots. Many of these bots are now trading against themselves. Trading has become so fast and sophisticated that now AI is competing with the trading bots and with other versions of AI.
Bitcoin may be knocked down and it’s growth suppressed, but only for so long. When its bounces back, it will bounce back fast. This can be seen in the recent rise in from $3,500 to $10,000 over a period of a few short months.
As the market reenters its growth phase, will you be well-positioned to profit from it?