The launch of bitcoin futures at the end of last year, together with which traditional investors were given the opportunity to raise against the largest cryptocurrency, played a role in the subsequent movement of its course, according to the US Federal Reserve.
In an economic letter published by the Federal Reserve Bank of San-Francisco on May 7, it is said that the rapid rise and subsequent decrease in the price of bitcoin against the background of futures launch is far from a coincidence. The event corresponds to the traditional behavior of the asset market after the launch of futures on its basis. A similar situation occurred with bonds in the early 2000s.
“The subsequent decline was caused by the creation of a tool that allowed pessimistic investors to bet against the underlying market,” writes the Federal Reserve. “Thus, the appearance of the blockchain made it possible to present a new financial instrument, bitcoin, on the growth of which optimistic investors put it, until futures were launched that allowed pessimists to enter the market, which played a role in the reversal dynamics of bitcoin prices.”
According to the report of the Federal Reserve, the growth of bitcoin was an example of self-fulfilling prophecy. Optimists motivated new investors to invest, as a result of which the price grew. Pessimists did not have a full-fledged instrument before expressing futures to express their distrust of the cryptocurrency, so they could only wait for the moment when they could say: “I told you so.”
CBOE and CME launched their bitcoin futures in mid-December. At the same time, the cryptocurrency reached its historic high above $20,000, after which it returned to $6,000 in early February.
The authors of the report argue that the launch of futures put an end to the “one-sided demand of speculators”. Referring to various data and calculations, they write that “the rapid rise in the price of bitcoin and its decline after the launch of CME futures correspond to the price dynamics described in the theory of finance.”
They also suggest that the key factor that will determine the price of bitcoin in the long term will be its role as a means of committing transactions that are not constrained by state borders and characterized by low commissions, while the speculative component will gradually lose its significance.