US Federal Reserve: Launching Bitcoin Futures …
US Federal Reserve: Launching Bitcoin Futures and Subsequent Decrease in Its Price Is No Accident
The launch of bitcoin futures at the end of last year, with which traditional investors were able to bet against the largest cryptocurrency, played a role in the subsequent movement of its course, according to the US Federal Reserve..
An economic letter published by the San Francisco Federal Reserve Bank on May 7 says that the meteoric rise and subsequent decline in the price of bitcoin amid the launch of futures is far from coincidence. What happened corresponds to the traditional behavior of the asset market after the launch of futures based on it. A similar situation happened with bonds in the early 2000s.
“The ensuing fall was driven by the creation of an instrument that allowed pessimistic investors to bet against the underlying market,” the Fed writes. “Thus, the emergence of blockchain allowed the introduction of a new financial instrument, bitcoin, which optimistic investors bet on the growth of which until futures were launched, which allowed pessimists to enter the market, which played a role in the reversal dynamics of the price of bitcoin.”.
Bitcoin’s rise was an example of a self-fulfilling prophecy, according to the Fed. Optimists motivated new investors to invest, as a result of which the price rose. Before the launch of futures, pessimists did not have a full-fledged tool to express their distrust of cryptocurrency, so they only had to 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 all-time high above $ 20,000, after which it returned to the $ 6,000 mark in early February..
The authors of the report argue that the launch of futures has ended the “one-sided demand from 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 futures on CME 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 making transactions, not constrained by state borders and characterized by low fees, while the speculative component will gradually lose its significance..
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