CME Bitcoin futures started bear market - Federal Reserve - page 2.

bbc.reporter

legendary

Activity: 3122

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Quote from: exstasie on December 01, 2018, 02:33:49 AM

Quote from: bbc.reporter on November 30, 2018, 09:36:11 PM

Is the letter published by the Federal Reserve real? The link in the article of the said letter goes to another bitcoinnews.com story about games in the cryptospace that is not related to this article.

In any case, is this another example of incomepetent reporting by the bitcoin news media or fud spreading?

It wasn't The Fed like the article makes it sound. It was the Federal Reserve Bank of San Francisco. It was basically a research paper (done by their researchers and a Stanford professor), sort of in the vein of some of BitMEX Research's stuff.

I think there's some substance to what they're saying here:

Quote

We suggest that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value.

I think this was apparent in 2014 too. Bitfinex was just becoming a prominent, liquid exchange at the end of 2013, and it was the first place you could easily short BTC. Then came the longest bear market in history!

You can see BitMEX's volume rose similarly at the end of the 2017 bubble (and has only continued to rise since). I don't think it's a coincidence.

CME's volume is pretty high, so although there is no direct arbitrage, maybe people follow it.

Hehehe we are tricked by another clickbait article from the bitcoin news media once again.

However, I agree that the Federal Reserve of San Francisco's research has some substance. Does this then imply that the bear market will be longer than speculated?

Tytanowy Janusz

legendary

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Quote from: bbc.reporter on November 30, 2018, 09:36:11 PM

Its reason for this is that when a new asset class is born, there are optimistic investors who buy it up, driving the market upwards. However, pessimistic investors have no voice and no way to bet against an asset’s value, until futures markets are launched. Once futures markets are launched, pessimistic investors can short sell, where they buy futures contracts via a loan, sell them for cash and then buy back the contracts later at a lower price before the contracts expire.

There is alwais a way to short asset. I've heard about manny invesotrs shorting btc at 5k-20k range in 2017.

One on the possibilities is phisical short. You simply go to big exchange and borrow their bitcoins stored in hot wallets paying them small fee. After that you sell those btc on market and rebuy at lower price.

exstasie

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Activity: 1806

Merit: 1521

Quote from: bbc.reporter on November 30, 2018, 09:36:11 PM

Is the letter published by the Federal Reserve real? The link in the article of the said letter goes to another bitcoinnews.com story about games in the cryptospace that is not related to this article.

In any case, is this another example of incomepetent reporting by the bitcoin news media or fud spreading?

It wasn't The Fed like the article makes it sound. It was the Federal Reserve Bank of San Francisco. It was basically a research paper (done by their researchers and a Stanford professor), sort of in the vein of some of BitMEX Research's stuff.

I think there's some substance to what they're saying here:

Quote

We suggest that the rapid rise of the price of bitcoin and its decline following issuance of futures on the CME is consistent with pricing dynamics suggested elsewhere in financial theory and with previously observed trading behavior. Namely, optimists bid up the price before financial instruments are available to short the market (Fostel and Geanakoplos 2012). Once derivatives markets become sufficiently deep, short-selling pressure from pessimists leads to a sharp decline in value.

I think this was apparent in 2014 too. Bitfinex was just becoming a prominent, liquid exchange at the end of 2013, and it was the first place you could easily short BTC. Then came the longest bear market in history!

You can see BitMEX's volume rose similarly at the end of the 2017 bubble (and has only continued to rise since). I don't think it's a coincidence.

CME's volume is pretty high, so although there is no direct arbitrage, maybe people follow it.

davis196

hero member

Activity: 3164

Merit: 937

Fake news or not,I kinda believe this theory.The bitcoin futures trading has a significant influence over the bitcoin market.The Bakkt project might make everything worse.I really wish that we could turn back to the good old days without BTC futures trading. Sad

Baofeng

legendary

Activity: 2576

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Funny because Nov. 30 is a another date to bitcoin future expirations and its seems the price slump again from a rally as high as $4300 and now we are back a shade below $4k. But its really hard to tell if they're really the catalyst for the bear market. Although if you're in this community during December 2017, you will hear some members saying that they have mixed feelings about this kind of offerings. Although they entering into the cryptosphere really pushed the price to all-time-high, but I don't know if we can also blame them for the massive sell-offs specially during or near the expiration dates.

bbc.reporter

legendary

Activity: 3122

Merit: 1492

Is the letter published by the Federal Reserve real? The link in the article of the said letter goes to another bitcoinnews.com story about games in the cryptospace that is not related to this article.

In any case, is this another example of incomepetent reporting by the bitcoin news media or fud spreading?

In a statement widely overlooked by the Bitcoin community, the Federal Reserve published a letter on its website in May 2018 blaming the launch of Bitcoin futures markets on the Chicago Mercantile Exchange (CME) for the decline of Bitcoin’s price.

The Federal Reserve says this sort of market behavior has been observed in other asset classes when futures markets are introduced. Specifically, it mentions how the mortgage industry boom was reversed when futures markets for mortgage securities were launched.

Its reason for this is that when a new asset class is born, there are optimistic investors who buy it up, driving the market upwards. However, pessimistic investors have no voice and no way to bet against an asset’s value, until futures markets are launched. Once futures markets are launched, pessimistic investors can short sell, where they buy futures contracts via a loan, sell them for cash and then buy back the contracts later at a lower price before the contracts expire.

The Federal Reserve implicitly says that Bitcoin would have kept rising past USD 20,000 if CME had not launched Bitcoin futures and explicitly says the CME Bitcoin futures are the exact reason for the beginning of Bitcoin’s price collapse.

Further, the investment opportunity presented by Bitcoin futures diverts investment away from the spot markets. Bitcoin futures on CME are cash settled, meaning no Bitcoins are backing them. Therefore, investment into the futures does not increase spot demand for Bitcoin but in fact, causes Bitcoin’s price to be lower since the money invested into the futures is diverted from the spot market.

The Federal Reserve explains how the combination of short selling and diversion of investment away from the spot markets creates a feedback loop which forces Bitcoin’s price lower.

Read in full https://bitcoinnews.com/federal-reserve-cme-bitcoin-futures-prompted-bear-market/

Topic: CME Bitcoin futures started bear market - Federal Reserve - page 2. (Read 503 times)