The launch of Bitcoin futures in the US last December contributed to the subsequent fall in the Bitcoin price (BTC/USD), according to new research from the San Francisco Federal Reserve.
The Bitcoin price hit an all-time high of around $20,000 on December 17, the same day the Chicago Mercantile Exchange (CME) launched its Bitcoin futures offering and a week after the Chicago Board Options Exchange (CBOE) had introduced a similar product. However, the cryptocurrency has since seen a major slump, losing more than half of its value.
According to the San Francisco Federal Reserve’s most recent Economic Letter, this trading behaviour was likely not a coincidence
"The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence," researchers wrote in the letter, as quoted by CNBC. “It is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.”
The introduction of Bitcoin futures provided an easy way for more pessimistic investors to bet on the decline of the cryptocurrency price, the researchers wrote.
"The launch of bitcoin futures allowed pessimists to enter the market, which contributed to the reversal of the bitcoin price dynamics," they said.
The researchers pointed out that a similar pattern was observed mortgage-backed securities, which they said hinged on the same driving force of optimistic and pessimistic traders.
The authors of the research note that there are likely to be other factors that will drive the Bitcoin price “as speculative dynamics disappear”. For example, if traditional financial institutions become more willing to accept Bitcoin, this may lead to a substantial increase in demand. However, they also argued that a different digital currency becomes more widely used that Bitcoin, the original cryptocoin may see a very steep drop “because these tend to be winner-takes-all markets”.
In today’s trading, the Bitcoin price stood at $9,327.21, as of 10:55 BST. The digital coin has lost 0.10% of its value in the past 24 hours, according to data from cryptocurrency tracker Coinmarketcap.
For further information on how to buy and trade Bitcoin, see our comprehensive Bitcoin guide.