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Futures Trading Preventing Bitcoin Price to Spike Up


Bitcoin has lost 70{4ede17fdd9b4ce8121d01fc4b54913fe84f8215aace504cc657695cefb5329ff} of its value since it was able to reach its all-time high.  It has lost around 60{4ede17fdd9b4ce8121d01fc4b54913fe84f8215aace504cc657695cefb5329ff} of its value this year especially after Japan implemented strict regulations on crypto exchanges.

For a lot of investors, it can be quite alarming especially if you entered the crypto market at around December. If you are hoping for the next bull-run, perhaps, don’t expect another 2017. Yukio Noguchi who is an advisor to Waseda University’s Business and Finance Research Center argues that Bitcoin can’t have another rapid surge.

Bitcoin is currently trading below $6,000. And for Noguchi, one of the reasons why we might not be able another rapid rise is due to the availability of Bitcoin futures. However, he also made a point that the bright side would be the fact that the cost of sending Bitcoin is now cheaper than doing bank transactions.

Introduction of Futures

According to Noguchi, the introduction of futures market has kept the price of Bitcoin down significantly. In January, he mentioned that one of the causes of Bitcoin’s price collapse is due to the selling of Bitcoin futures. “Bitcoin price were a bubble, to begin with, and now we’re seeing a return to normal values”.  And Noguchi isn’t alone in his stance. The San Francisco Federal Bank also mentioned suggested the introduction of futures trading could hurt the price of Bitcoin.

Noguchi pointed out a paper that was published by the Federal Reserve Bank of San Francisco on May 7 entitled “How Futures Trading Changed Bitcoin Prices”. It says that “From Bitcoin’s inception in 2009 through mid-2017, its price remained under $4,000. In the second half of 2017, it climbed dramatically to nearly $20,000 but descended rapidly starting in mid-December. The peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures market for an asset”.

Bitcoin Will Remain Bearish?

According to Noguchi, the majority of investors predict that the price of Bitcoin is expected to continue to fall. This is especially true now that there are those who can actually make money by short-selling Bitcoin. However, Noguchi sees this as a good thing for Bitcoin. He said that it becomes easier to send money.

$5k Is a Good Entry Point?

Mohammed El-Erian who is the chief economic adviser for Allianz mentioned that price below $5,000 makes a good entry point if you are a Bitcoin investor. He said that “I don’t think you get all the way back to $20,000, but I do think that you need to establish a base whereby the people who really believe in the future of Bitcoin consolidate that provides you a lift”.

He believes that Bitcoin will be a store of value rather being used as a currency. However, he also didn’t rule out the possibility of Bitcoin being used as a medium of exchange.

There are many reasons why Bitcoin is trading below $6,000 today. Hacking incidences to the lack of regulatory clarity are just some of the reasons that it has continuously dropped in value. However, is Noguchi correct about futures trading and Bitcoin? Is this the primary reason why another bull-run seems quite impossible at the moment?

Lee Jenkins

Lee is our resident cryptocurrency expert who knows the ins and outs of each coin and the blockchain technology behind them. You’ll find that most of our technical guides are written or overseen by Lee and they are all easily digestible by the new and experienced alike, so there is no better place to learn blockchain 101 than here. Occasionally you may see a news article from him if it’s tech related!