Researchers: Q1 2018 Bitcoin Decline Caused by CME Futures Market

May 09, 2018 at 23:00

Economic researchers from the Federal Reserve Bank of San Francisco said that Bitcoin’s drop from its peak price in December 2017 may be directly associated with the introduction of the flagship cryptocurrency’s futures trading on the Chicago Mercantile Exchange.

The team composed of Galina Hale, Arvind Krishnamurthy, Marianna Kudlyak and Patrick Shultz claimed in a research paper that the rise and subsequent decline of Bitcoin prices is caused by the introduction of a futures markets for the asset.

The researchers expressed that the CME futures market for Bitcoin allowed pessimists to bet on a price decline enabling them to buy and sell contracts with a lower delivery price in the future than the spot price.

Likewise, the study pointed out that the Bitcoin futures market empowered traders to sell a promise to deliver a bitcoin in a month at a lower price than the existing spot price while expecting to buy the cryptocurrency during the month at an even lower price to realize a profit.

The group also mentioned that offers of future bitcoin deliveries available at a lower price has put a downward pressure on the spot price adding that those who buy bitcoins for transactional or speculative reasons and willing to wait a month experienced a good deal. However, the opportunity paved the way for a drop in demand in the spot bitcoin market which significantly pulled down prices.

The researchers also emphasized that Bitcoin’s value experienced a continuous growth pattern from February 22, 2017 when its price was at around $1,150 until it peaked at $19,511 in December 17, 2017, the same day when futures trading of the cryptocurrency on the CME started.

It can be recalled that from its peak in December 2017, Bitcoin’s value reached as low as the $6,600 mark during the first five months of 2018.

As of this writing, its value is at the $9,100 territory.