Tom Lee thinks bitcoin futures are the cause of Bitcoin (BTC) price drop

During a recent interview with Bloomberg, Thomas Lee of Fundstrat Global Advisors had an interesting take on why Bitcoin price dropped so dramatically in recent days. During just over a week’s time, Bitcoin fell off a cliff and lost almost 20% of its value. Mr. Lee feels that this drop had something to do with the expiration of futures contracts signed last year.

His explanation centers around the CBOE and CME futures marketplaces. According to Lee’s report, Bitcoin tends to experience dramatic price changes around CBOE futures expirations. His research seems to be based on a sample of 6 expirations since CBOE originally launched its Bitcoin futures trading. Lee’s conclusions align well with a theory cited by Justin Saslaw, crypto asset investor at Raptor Capital Management, who also claims that Bitcoin becomes more volatile when its futures start nearing their expiration dates.

“Bitcoin has fallen 18 percent on average in the 10 days preceding expiration, with price recoveries by the sixth day afterward,” Lee writes. “If a trader is long Bitcoin and short the futures, as contracts move closer to expiry, holders may sell a large share of the coins at volume weighted average price (VWAP) to minimize tracking error. But near expiration, may sell the remaining Bitcoin, causing the price to drop, leaving the short position in the futures to close with a handsome profit.”

Lee also notes that inflow of value into the crypto market has been “insufficient”. The general market volume has been dropping off significantly which coincided with the futures contracts expiration. Combine these with the still low institutional adoption and an increase in Bitcoin supply caused by mining rewards (with no institutional tools available to absorb it) and you get a perfect combination of factors to cause a drop-off in Bitcoin’s price.

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Granted there have been plenty of theories about what caused this recent drop-off and Lee’s is just the most recent one. From blaming the Coinrail hack to implying that an Asian whale singlehandedly broke the market, many have looked to analyze and comment on the issue. One recent theory cited Tether manipulation happened at Bitfinex caused the Bitcoin price inflation and that we are just now experiencing the real fallout from that.

The truth is that all of those elements probably contributed to the current bear trend we are experiencing. Bitcoin’s initial January drop-off began just weeks after Bitcoin futures trading began, clearly implying that there might be some correlation here. Other factors are pretty standard bearish signals that would cause similar effects on any financial market. BTC for now doesn’t seem ready to break out of the bear trend, as it’s being traded at 6533 USD, jumping there from 6275 USD in what many feel is a textbook case of a “dead cat bounce”. For now, the sentiment remains bearish as we wait for a significant increase in volume and price to confirm a trend reversal.

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