The San Fran Fed Blames Crypto Crash on Bitcoin Futures
Federal Reserve Bank of San Francisco published an analysis of Bitcoin prices and the crash of 2017 – 2018, pointing to Bitcoin futures as the main catalyst for the crash.
This line of thinking confirms what many suspected to be the case, that the futures markets opening in late 2017 led to the parabolic uptrend (in anticipation) and deep crash of late 2017 – early 2018 (in response to the start of futures trading).
However, it is important to stress that the charge isn’t as dire as it first might sound.
The Fed’s logic is simple, Bitcoin optimists bid up the price in 2017, but Bitcoin pessimists had no way to bet against it in that time. So it just kept going up. That changed with futures trading. As both major futures exchanges (CBOE and CME) opened for business, the price of Bitcoin crashed.
The paper points out that this isn’t unique to Bitcoin, but rather it is the same thing that happened in the US housing market bubble leading up to 2007 and is consistent with economic theory.
The above said, I would add also add to this that the San Fran Fed is “missing,” or professionally not commenting on, the part where smart people with big money fully realized that this would likely all play out like this and bid up the price of Bitcoin specifically to create a speculative mania based on the idea that big institutional investors were finally validating crypto (“the rumor”).
Then, upon “the news” of futures trading, the same people who bid up the price, or let the price be bid up, let the price of Bitcoin drop like a rock [with the help of flooding the market with crypto, likely at a loss], thus setting up for a “big short” as futures trading went live [blaming it on Chinese New Year or something silly like that, I forget the exact “why” of the time].
This then predictably crashed the rest of the crypto market (after it itself pumped), which then allowed the new players to buy cheap crypto on the exchanges and OTC (and old players who helped pump it to do the same), which then allowed both to become a force / even bigger force in the spot buying market (the exchanges we all trade on where we buy and sell crypto).