How Bitcoin Futures Led to December 2017 Crash

How Bitcoin Futures Led to December 2017 Crash

An economic letter was released today by the Federal Reserve Bank of San Francisco suggesting that Bitcoin’s dip, from its $20,000 peak in December, was the result of futures trading.

The Federal Reserve’s letter states that the price drop does not appear to be coincidence. The dip is consistent with typical trading behavior that is accompanied by the introduction of a teacher’s trading market.

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Overly optimistic investors who believed the price was going to increase, were one of the only driving forces behind the Bitcoin rally. With this constant price growth, more optimists stepped into the market and increased demand even further.

Those who were looking to short Bitcoin and profit from its fall now had an instrument, with Bitcoin futures, that would give them an opportunity to decrease demand and push prices downward.

The Economic Letter also states that Bitcoin’s price didn’t collapse overnight due to the low trading volume within the futures market.

Bitcoin’s highest price ($20,000) coincided with the introduction of the futures market by Chicago Mercantile Exchange (CME)in mid-December 2017. Chicago Board  Options Exchange (CBOE) was also launched a week later although trading was fairly thin at that time.

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