The Twists and Turns of Bitcoin’s Price Decline
The cryptocurrency world is wilder than a three-ring circus. Recently, Bitcoin (BTC) took a nosedive, plummeting more than 20% in what experts are dubbing a “gut-wrenching” event. This shake-up has been attributed to the expiration of Bitcoin futures, as reported by none other than Bloomberg on June 14.
Futures Expiration: The Root of the Mayhem?
Thomas Lee, head of research at Fundstrat, stepped into the limelight to explain that Bitcoin has a volatile relationship with the expiration of futures contracts. He highlighted that there have been six such expirations since the CBOE kicked off its futures contracts back in December 2017. According to Lee, these expirations typically lead to dramatic price shifts, and it seems he has the data to back that claim up.
Patterns of Price Drops
Lee’s research suggests that Bitcoin commonly sees a decline of about 18% within ten days leading up to futures expiration. But don’t put your party hats away just yet; he also pointed out that after hitting the metaphorical floor, BTC usually makes a comeback about six days post-expiration. So, it’s like watching a bizarre dance-off between bulls and bears.
Trading Strategies: Long vs. Short
For those traders long on Bitcoin but short on futures, things can get tricky. As the contracts near their expiration date, these traders might decide to sell off large portions of BTC at the volume-weighted average price. This flurry of sales can cause prices to bleed, which is a recipe for disaster if you’re holding the bag. Cue the dramatic music!
The Bigger Picture: Market Investment Trends
This year hasn’t been the best for crypto investments – Lee noted that there’s been an uptick in net supply due to new initial coin offerings (ICOs), mining rewards, and capital gains taxes. If you thought the market was crowded before, just wait until the new players arrive! Tension is thick in the air, and the aroma of uncertainty is palpable.
A Glimpse of Hope: Recent Rebounds
After the tumultuous week, the crypto markets decided to sprinkle some fairy dust, resulting in a gain of around $20 billion in total market cap just days later. Bitcoin, which suffered a recent low of $6,263, is starting to taste the sweet nectar of recovery, trading around $6,618 at the time of writing. What a rollercoaster!
Regulatory Eye: CFTC Investigates Crypto Exchanges
In more drama-filled news, the U.S. Commodity Futures Trading Commission (CFTC) is reportedly looking into four major crypto exchanges—Bitstamp, Coinbase, itBit, and Kraken. Why, you ask? They’re investigating potential price manipulation linked to these platforms providing data for the CME Group’s Bitcoin futures. It’s like the crypto version of an episode of Law & Order: Special Crypto Unit.
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