Bitcoin price not correlated to futures expiration

19 October, 2018

The common idea that the bitcoin price drops just before the cryptocurrency futures contracts expire has no solid basis, a new study published by Cindicator suggests.

The report, titled Bitcoin Futures: Market Evolution, studied bitcoin volumes on futures and spot cryptocurrency exchanges to get an idea about the liquidity and development of the holistic trading market. It initially found the presence of institutional investors in the future markets, analyzed their past positions on the futures, compared them to the bitcoin price movements before the future expired.

The analysis is rested on a theory that future markets, with their comparatively lower volume than the spot market, are insufficient catalysts when it comes to predicting bitcoin spot prices. The Cindicator researchers, therefore, opted to study the bitcoin price action every time a future approached its expiration date.

“This is partly because of arbitrageurs trying to gain from differences between futures and spot prices that can be produced by lower liquidity and/or differing demand-supply dynamics of futures and spot investors in the short term,” the researchers explained.

The First Expiry

Last December, CBOE and CME launched bitcoin futures around the same time, with just a week difference between them. The Cindicator report found that the bitcoin price pattern before the first future contract expiry in both the exchanges was similar. The price dropped before each fix and started increasing afterward, similar to the belief that speculators have operated on to date.

JANUARY 2018 — Expiries of F8 contracts – The red areas represent the seven-day period before the expiries of CBOE futures and the blue ones represent the seven-day period before CME expiries.

“Probably because it was the first expiry, the CBOE futures experienced a spike in intraday hourly return volatilities on expiry,” the report said while citing the pump-and-dump price behavior of bitcoin between January 16 and 17. The CME futures expiry, however, reacted smoothly to a similar pump-and-dump approach that took place between January 21 and 29.

The Next Expiries and Growing Irrelevance of Futures Market

Following that first settlement date, expiries of both the CME and CBOE futures found their relevance fading with respect to the performance of the spot market, even as futures volumes increased. The market players seemingly moved away from the future markets, its arbitrage opportunities, and future price movement dynamics in response to a strong bearish bias. Therefore, the bitcoin price usually fell before the future expires, but didn’t rise back as expected — owing to the then-current selling sentiment.

Cindicator studied the futures patterns with respect to bitcoin spot price until September, finding that their popular correlation couldn’t sustain the mainstream bearish factors seen after January. Every time, mainstream fundamental factors belittled futures market relevance in defining the bitcoin price movements. In May, for instance, the bitcoin price dropped due to a strong bearish bias imposed after the invalidation of strong support at $10,000 — not because futures were approaching their conclusions.

“Regardless, despite the small impact of futures on the trend, it is interesting to note that volatilities picked up before expiries — a price discovery activity signal,” the analysis noted.

Simon Keusen, Head of Analytics at Cindicator, concluded by saying that “there is no golden rule for trading based on futures expiration dates,” but one should be analyzing the overall market trends to get a clearer picture.

“Our conclusions from this research are a good representation of the overall value we seek to provide to crypto investors by presenting different reasons for why certain market movements might happen and encouraging doing research and using analytical tools,” he added.

Source link   Crypto currency: Bitcoin

Blockchain Life 2019

On April 23-24 world blockchain and cryptocurrency industry meet at a 3d global forum - Blockchain Life 2019 in Singapore. More than 5000 participants from 70 countries are going to visit the biggest...

Will Crypto Exchanges be Able to Survive

Only the fittest will survive, or so the saying goes. This mantra does not only apply to the animal kingdom, it works in the business world also and surviving is what a lot of...

Why Crypto currencies Will Rise Again

The cryptocurrency market has undergone a great deal of turmoil over the past year or so. The idea of a cryptographically secure decentralized ledger laid the foundation for the...

Crypto VC firm seeking $60M amid bitcoin rout

It goes without saying that 2018 bear season savaged the broader crypto industry. Investors lost faith, Wall Street seemingly pulled out and entire startups...

Could Bitcoin Initiate a New Bull Cycle by 2019?

In the last 24 hours, the cryptocurrency market recovered by $4 billion as the Bitcoin price rebounded above $3,700. Several major crypto assets in the likes of Ethereum...

2019 a Year of Accumulation For Bitcoin

In the past 24 hours, the crypto market has recovered from $120 to $123 billion as the Bitcoin priceavoided a further drop below the $3,600 mark. The bitcoin price...

Bitcoin Exposed, ETF Hopes Dimming?

In the short-term, sellers seem to be in charge and yesterday's drop below our immediate support at $3,700 may lead to reductions towards $3,400 may lead to...

Why cryptomarket remains bearish in 2019

With the exception of Ethereum, which seems to have started the year with all guns blazing ahead of the Constantinople fork, it won't surprise anyone that the market analysts SFOX rate...