Last week, we saw the price of Bitcoin plummet as we headed toward the end of the month.
Three months in a row we've seen that.
March 26 saw the close of a gigantic amount of Bitcoin futures contracts.
And there's little doubt that this is what pressed the price of Bitcoin down into the abyss.
Now that they've expired,
a dark cloud has been lifted from above Bitcoin and the heavens have opened up.
But here's the thing.
This won't be the last close of futures contracts that pushes the price of Bitcoin down.
Today, we're going to be looking at the next dates you need to be paying attention to,
and we'll explain these futures contracts to you and why they push the price of Bitcoin down.
Let's get it!
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In today's video, we're going to be discussing Bitcoin futures,
what they are and why they affect the price so much.
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Alright, so let's get going with these futures contracts.
First, you need to understand what a futures contract is in general.
So according to Investopedia,
a futures contract is a legal agreement to buy or sell a particular commodity asset or security
at a predetermined price at a specified time in the future.
Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.
The buyer of a futures contract is taking on the obligation to buy and receive the underlying asset
when the futures contract expires.
The seller of the futures contract is taking on the obligation
to provide and deliver the underlying asset at the expiration date.
So in short, with futures contracts,
a buyer and seller agree to a certain price point for an underlying asset
at a given time in the future.
Futures are part of the derivatives market, a $1 quadrillion market of IOUs.
The people who participate in these markets are broken down into two main categories,
hedgers and speculators.
The hedgers look to make money based upon securing the stability of an asset.
Speculators look to make money based upon risk.
But the speculators don't always fight fair, as we will see in a bit.
So now, let's apply all this to Bitcoin and see this in action.
The first Bitcoin futures contracts were launched by CBOE.
It started trading on December 10, 2017.
Pretty much the peak of the Bitcoin bull market that year.
And many blame these contracts and say they wrecked the entire market.
At the peak of the Bitcoin mania and euphoria,
institutions came in and hedged against rising Bitcoin prices,
assuring that they would plunge to the ground.
This is where Bitcoin futures contracts get really interesting.
The original Bitcoin futures contracts from CBOE and CME later on were settled in cash.
Later on, Bakkt would launch their Bitcoin futures contracts,
and those are settled in actual Bitcoin.
But these original futures contracts were not like that.
So think about this.
Institutions are betting on the price of Bitcoin to go down,
and these contracts are getting paid off in dollars.
One of the greatest features of Bitcoin, of course, is its rarity.
There are only 18.6 million Bitcoin out there floating around.
There's a limited supply.
When institutions bet on the price of Bitcoin but settles them in dollars,
it creates what we call paper Bitcoins.
It's the derivative version of Bitcoin which is essentially an IOU on paper.
This negates the finite supply,
meaning there's no limit to the number of investors who can bet on the price of Bitcoin going down.
This is very dangerous and demonstrates how the traditional markets
can come into something new and wreck it.
We saw this as the first Bitcoin futures contracts began open bidding at $20,000.
By the time they close a little over a month later, Bitcoin dropped 50% all the way down to $10,000.
So the question is
what are the mechanics and motivation for the prices to drop?
Let's get specific about Bitcoin futures.
Many investors, institutional and retail alike,
are scared away from Bitcoin due to the volatility of the price.
This is what prompts people to refer to it as a scam or a bubble.
Last year, we saw the price of Bitcoin drop almost 50% in a day
during the March pandemic crash.
Of course, it bounced back and recovered,
but traditional investors,
aka old people who like to go to The Hamptons for a wild weekend of wife swapping,
do not like that volatility.
I mean, they could get a heart attack during the dip.
Futures contracts with Bitcoin allow them to get in the market without a lot of risk.
The regular Bitcoin market, the spot market, allows investors to buy Bitcoin as is.
Today, the price is $58K, so they can buy it at $58K,
but the futures market allows them to have the option to buy Bitcoin
at $58,000 at a future time.
So if Bitcoin hits $100K by the end of May,
these scared investors buy the right to still buy a $58K Bitcoin
even if the price is at $100K.
It's kind of like a cheat code.
But remember,
these futures aren't mainly settled in Bitcoin,
so basically all they're doing is pocketing $42,000 for a futures contract that they bought.
And this is where the drama comes in.
The smartest and most deep pocket investors never lose here.
A couple of years ago, Arcane Research determined that it's almost statistically impossible
that the price of Bitcoin randomly drops toward the end of future settlements.
There's a link between the price of Bitcoin and futures contracts settlement dates.
And the interesting thing is that the more bullish the price of Bitcoin is leading to the settlement dates,
the harder the fall.
There are two ways these geezers manipulate the price to push it down for the settlement dates.
The first is to go long on actual Bitcoin on the spot market.
Then they hedge their Bitcoin holdings by selling futures contracts that short the market
or bet the price will go down.
Their profit is found somewhere between their actual holdings and their short contracts,
a guaranteed return of a small percentage.
Of course, it makes sure everybody else gets wrecked,
but as long as they get their hooker money, I guess they're good.
But there's an even darker and sinister move called "banging the close".
Companies like Goldman Sachs and HSBC have actually faced legal action for this before,
so we know for a fact that they're doing it.
Here's how it works.
Right before the close of a futures contract,
the sketchy old money will go into the spot exchanges
and push a ton of volume through to make the price go down.
Why would they buy something and then push the price down in a few-minute period?
Ah, yes, because they have a gigantic short position with futures contracts
they need to get settled in their favor.
Since the CME Bitcoin futures contracts are settled in dollars,
they can open gigantic positions on the futures markets.
Bank of America recently said it only takes $93 million
in order to push the price of Bitcoin down 1%.
Arcane Research said the average settlement sees a drop of 2%
leading to the futures expiration dates,
even when the price of Bitcoin is bullish for the rest of the month.
This means for approximately $200 million,
institutions are flooding spot exchanges to push the price down to settle their contracts.
So if you were wondering what we saw last week,
it was kind of the doomsday scenario for Bitcoin in the short term.
The Bitcoin futures contracts are generally settled on the last Friday of the month.
While there are weekly Bitcoin futures contracts, the majority of the contracts are traded by month.
But there's another huge Bitcoin futures market, which are the quarterly contracts.
So, March 26 was a double whammy.
Not only was it the settlement of the monthly contracts,
but it also finished off Quarter 1 of 2021.
$6 billion worth of contracts expired that day.
And that was why we saw the price sink like a rock throughout the week,
and then boom!
As soon as the contract settled, the price magically started going up again.
Whoooo!
Futures contracts are basically a plague to existence.
They are a way for traditional investors who like Mr. Monopoly or Mr. Magoo
to come into our playground and try to bully us.
The thing that is a little different about right now
is that we really haven't seen these quarterly closes throughout an entire bull market.
But now that we've scouted our opponent, we know how to defeat them.
The next date we should be looking at is April 30, the end of this month.
According to this chart by ExxaBlock,
the amount of futures contracts expiring look gigantic.
But in reality, it's only about a third of what we just saw.
But the thing about these futures contracts is that each month, they roll into the next month.
So the next big date we should really be paying attention to is June 25,
the June monthly close and the Quarter 2 close.
By the time the contracts roll into one another,
we will probably be looking at well north above $6 billion.
You can bet your bottom satoshi
these fuddy-duddies are going to try to push the price down.
So when they come to our sandbox,
the BitSquad is going to play it smart and exit the markets while we wait for the price drop.
Also, guys, if you want access to the daily ExxaBlock report
for the BitSquad specifically,
check out bitboycrypto.com/deals.
But what do you think?
Will these traditional investors continue to push the price down at the end of each month?
Or will we get past it at some point?
Let me know down below in the comments.
That's all I got.
Be blessed.
BitBoy out.