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The expiration of $328 million in BTC derivatives can lead to more volatility. Now Bitcoin price has gone slightly below the $9,500 level.
As the CME futures expire on May 29, the coin market is expected to exhibit vintage volatility associated with the event. This is coming at a time that the price of Bitcoin has shown an upswing with the dominant asset trading closer to $10,000. It is expected that the derivatives expiration would have a direct impact on the Bitcoin market based on antecedence.
Bitcoin futures expire every other month and according to market analysis from Arcane Research, this would have a negative impact on the spot market. As at the time of filing this report, BTC price is already down by 2.3 percent in anticipation of the futures contract expiration.
It is not clear if this is a case of manipulation even though some analysts allude to that suspicion. With a daily trade volume of $380 million, the futures market is settled in cash, yet its effect on the price of Bitcoin is not in doubt. This is mainly due to the fact that the futures market is the professional investor’s sphere and many investors closely observe sentiments in the market.
It’s Not Just Volume Thing
In relating with the spot market, it is important that investors not fixate on the futures trade volume. This is of the essence because positions in the futures market are mainly a function of the number of contracts that each investor purchased.
CME launched its Bitcoin futures in the wake of value appreciation for the asset in 2017, bringing in institutional-grade speculation to the coin market. Since then, interest in BTC futures has not waned. According to data from Skew, there has been a significant increase in CME futures contracts. From late March to this month, this has increased to $386 million from $130 surpassing both OKEx and BitMEX both of which had a combined growth of 50 percent.
Bitcoin rallied on Friday reaching $9,600 as many investors keep a close eye on the futures market in the quest to take full advantage of the imminent price swing. A 5.6 percent appreciation kept the market upbeat with the anticipation that the digital asset would soon break the critical $9,800 resistance and once more trade above $10,000.
BTC Mostly Downwards
It is left to be seen what direction the price of BTC moves with the upcoming expiration of the futures contract. According to the Arcane Research study conducted using data from January 2018 to August 2019, the price of BTC goes down 75 percent of the times before futures expiration.
An analyst Marcel Pechman opined that if Bitcoin hits the $10,000, investors would become more bullish. Daily Bitcoin chart shows that price is inching upwards with resistance at $9,675. At the time of writing, BTC is trading at $9,429.