The FED and prominent economists believe that the bitcoin futures market ultimately led the cryptocurrency market to crash and record the third worst correction in its history.
Real Impact of Bitcoin Futures
Yukio Noguchi, a Japanese economist, claimed in a recent column that the abrupt change in trend from a bull market to a strong bear cycle was triggered by the launch of the CBOE and CME bitcoin futures market in December 2017.
Late last year, the cryptocurrency market reached its all-time high, surging to $900 billion in valuation. The price of bitcoin, the most dominant cryptocurrency in the global market, achieved $20,000 and the price of ether broke $1,400. But, in January, the price of cryptocurrencies started to drop, eventually recording a 70 percent correction within a seven-month span.
Investors like BitMEX CEO Arthur Hayes stated that because the cryptocurrency market is still at its infancy and it has risen by more than 300 percent in a year, investors have to expect 70 to 80 percent corrections as they are natural.
However, Noguchi stated that the correlation between the fall in the price of cryptocurrencies and the futures market was not merely a coincidence, claiming that the bitcoin futures market was the main contributing factor to the 2018 correction.
Noguchi went as far to say that the cryptocurrency market will not be able to see rapid development in price ever again, due to the existence of the futures market.
“Because it’s now possible to trade on bitcoin futures, you’ll never see a rapid surge again,” Noguchi said.
Many analysts in the cryptocurrency space have also offered contrasting insights into the futures market and its impact on the cryptocurrency sector. Some have claimed that due to the fixed amount of long and short contracts that exist in the futures market, it is not possible to manipulate a market that is worth a few hundred billion dollars.
More to that, Noguchi’s claim that the cryptocurrency market will never see a rapid surge again is synonymous with the claims of the majority of economists subsequent to every major correction the cryptocurrency market experienced in 2010, 2014, 2016, and 2018.
Each time bitcoin suffered a 70 to 80 percent correction, it rebounded higher than its previous all-time high. The 2018 correction is conceptually no different to the 2014 correction because both can be considered as the “bubble” of retail traders, considering that institutional investors are not present in the space yet.
FED’s More Realistic View
While Noguchi said that the presence of the futures market will never allow the cryptocurrency market to experience rapid movements on the upside, the FED stated that for new asset classes, these behaviours and market trends are normal.
“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 markets for an asset,” read the paper of the FED.
There exists no conclusive evidence that the trend of cryptocurrencies coincides with the futures market and to conclude that the futures market has been the sole driving factor of the 2018 correction is premature, as of current.
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