20 Jan Are Institutional Investors To Blame For The Latest Bitcoin Sell Off?
There have been many speculations as to why Bitcoin (BTC) has seen such high volatility in the past five weeks. Many regulations have come to light from countries that hold the majority of Bitcoin holders, such as China and South Korea. Other speculations have been centered around the unknown affect the Bitcoin futures contracts have on the market and the lastest, the effect that institutional investors have had when they flooded the market.
China’s government has been active in its cryptocurrency regulations, as it recently surfaced that it will shut down mining operations due to power shortages. Many speculations have surfaced that it isn’t, in fact, the energy problem that shut down these operations but it was China’s central bank, due to rampant fraud and “money laundering” occurring within the country. As the country now focuses on attempting to cut off access to online platforms used to trade digital currencies, many of its residents are bound to find ways around these new regulations. It is a compelling speculation and one that most seem to be on board with but some are not necessarily convinced.
As you can see from the chart above, Bitcoin has had higher than normal consistent volatility in its price since the first launch of its Chicago Board Options Exchange (CBOE) futures, on December 10th. It reached a record high of over $20,000 a coin, just before the major Chicago Mercantile Exchange (CME) futures began and took an immediate bearish turn. It remains unclear by many analysts how these Bitcoin futures have affected the market, but there is no denying that they have in some way.
Noelle Acheson, an author from CoinDesk, made an interesting statement before the first Bitcoin futures launched. She said:
“But… it’s also possible that the institutional investors that are negative on bitcoin’s prospects (and there’s no shortage of those) may use the futures markets to put money behind their conviction. It’s much easier to sell a futures contract with a lower-than-market price than it is to actually short bitcoin. These investors may well send signals to the actual bitcoin market that sends prices tumbling.”
On January 9th, there were a total of 1,907 short position contracts on the CBOE exchange and when these contracts closed, BTC was down 36 percent. Since the price of Bitcoin has since rebounded and is selling above the $12,500 mark. The largest exchange, CME, will have its futures contracts expire this coming Friday. Many will continue to monitor Bitcoin’s price, as Friday closes in. Confirmation of the effect of these futures can only be shown with time.
Institutional Investors Buy-In
The most intriguing argument I’ve read to date comes from Georgy Verbitsky, managing director of Russia & CIS at EToro, claiming institutional experienced investors who entered the bitcoin market drove down the price. Verbitsky explains that many understand that the reason for Bitcoin’s price skyrocketing and the influx of the cash flow within the past few months, stemmed from mass-market and pensioners investing.
He told RT:
“Experienced investors knew that the bitcoin honeymoon couldn’t last forever. Those who catch the last train are usually punished by the market. Big-time miners and institutional investors understood that they needed to diversify, that they had to get some fiat money.”
Verbitsky isn’t convinced that China and South Korean are to blame for the price drop. “It was about pure greed. Of course, after they lost a third to a half of their investments, they pushed the ‘sell’ button,” he said.
He goes on to make a compelling point backing his argument, with China’s ban on ICOs back in September. Verbitsky claims that was a much larger blow to bitcoin but the market remained bullish and the hit went completely unnoticed.
Verbitsky makes a compelling speculation, one I have not heard yet. While the futures effects continue to be monitored and remain unknown, most shouldn’t worry. Any sort of investment is a gamble but you can say investing in cryptocurrency with its high volatility, is extremely risky. Most invested in Bitcoin are in it for the long haul. If you’ve invested more than you can afford and are extremely concerned, I’d say sell because the volatility isn’t going anywhere. The price of Bitcoin will continue to fluctuate but many trusted financial analysts believe that 2018, will be the year Bitcoin continues to rise.
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