According to a recent study by the U.S. Federal Reserve Bank San Francisco, the launch of Bitcoin futures last year was one of the reasons for the price drop at the beginning of the year.
Crypto trader demand the need to use Bitcoin
Now it is official – the bloodbath in January can be attributed to the launch of futures contracts in December 2017, among other crypto trader. What crypto trader already reported in January has now been confirmed by a study conducted by researchers at the U.S. Federal Reserve Bank in San Francisco.
Last December everything sounded like an upturn in the Bitcoin ecosystem. The CBOE and CME brought the Bitcoin world together with the traditional financial system. With the Bitcoin futures it should be possible from now on to profit from the fluctuations in the Bitcoin exchange rate without having to own the crypto currency itself. What was also new was that you could also benefit from a falling price. With forward contracts you could speculate on the price – after buying the financial products and a correct estimate you could make profits. Regardless of whether the price rose or fell.
U.S. Federal Reserve Bank study sees parallels to real estate bubble
The research team at the U.S. Federal Reserve Bank sees this as a parallel to the real estate bubble in the USA at the beginning of the millennium. They see in the strong price increase of Bitcoin and its fall after the issuance of the futures by the CME a parallel to price developments that had already existed in financial theory.
This price dynamic follows a trend where the demand for a product for a financial instrument is driven by optimists who drive up the price until the market introduces a mechanism that allows pessimists to invest in the other direction:
„And until 17 December, these [optimistic] investors were right. As in a self-fulfilling prophecy, optimists pushed up Bitcoin’s price and encouraged more people to get in and push up the price. But the pessimists had no mechanism to invest money in their views that the price would collapse.“
With the introduction of Bitcoin futures, the pessimists were finally able to benefit. By predicting a fall in prices at a certain point in time, they could profit from their prediction with the futures contracts. And for the time being, they were right. First came the sharp rise in prices in December – the Bitcoin was suddenly worth up to 20,000 US dollars. Only to fall back to as low as USD 6,000 by the beginning of February. Those who had bet on it had won.
The scientists continue to attribute this to the difference between speculative and transactional demand. This difference was obviously too high. The majority of investors speculated on high profits, while only a small portion of the people actually used Bitcoin (to pay with it).
And what happens next?
The researchers assume that the Bitcoin price will rise as transactional demand increases. In other words, if Bitcoin is actually used, it will be worth more. This is also due to the deflationary character of the crypto currency. Since the stock of Bitcoins is limited overall and the payout is constantly decreasing, the price can ultimately rise with increasing use and increased demand. Ultimately, everything depends on a number of factors such as regulation, acceptance, supply and demand. So: Use Bitcoin!