Reason Behind Bitcoin’s Price Decline

By Ravindra Chagetha

With the cryptocurrency prices plunging for more than 30% in the last month and 50% this year, life is becoming harder for Bitcoin traders. Amidst all of this, Tom Lee of Fundstrat has shed some light on the reason for the sudden weakness.

Lee, head of research, suggested that the prices have gone down only when Cboe bitcoin futures were launched in December 2017. “Bitcoin sees dramatic price changes around CBOE futures expirations. This was something flagged by Justin Saslaw at Raptor Group. We compiled some of the data and this indeed seems to be true. Overall, Bitcoin has fallen 18% in the 10 days prior to CBOE contract expiration”, Lee wrote on Thursday.

Lee also mentioned that there have been two exceptions; one in February when the prices went up by almost 15% and the other one in April when the prices went up by 16%.

This Wednesday, when the Cboe bitcoin June futures expired, the prices hit a four-month low.

Lee also added, “A broader observation is there is significant volatility around these expirations,” Lee added. “And on average, the price recovered by day six [following expiration].”

Other reasons that have been cited for the weakness are price manipulation concerns, bearish market and regulatory uncertainty. Despite these occurrences, if Lee’s observations are correct, then the prices should recover in a few days.

Even though the CBOE Bitcoin futures have gone down by 70% since the high of $20,500 last December, Lee still stands by his 2018 year-end target of $25000.

Chris Concannon, president and COO of Cboe Global Markets, in response to Lee’s analysis, wrote to CNBC: “While we are excited about our recently launched Bitcoin futures, the notion that they have materially affected the bitcoin price overstates their influence and ignores other critical facts. Our strict position limits and the limited open interest in our May and June settlements, suggest that the fall of Bitcoin can be more easily explained by other factors such as the recent regulatory scrutiny around the globe, steps by government tax collectors, the rise of other cryptocurrencies, and declining media interest in the asset.”