What Effect Did Futures Have on Bitcoin?
In some ways I’d argue that Bitcoin futures brought stability to crypto, as some said they would. However, they did it in a backhanded way that caused volatility and favored only certain types of traders.
What I mean is this:
Bitcoin was actually very steady from 2015 to 2017 after the 2013 – 2014 crash. It was steadily flat at first from 2015 to early 2016, and then it steadily increased in price from 2016 to 2017.
Even though we would see spikes and big drops, the general trajectory was either flat or upward in this time. While it is true altcoins tended to be more volatile in this period, the same was generally true for them as well.
Then, upon news of futures trading in late 2017, Bitcoin’s price sky rocketed in a rather unsustainable way. <— The effect of “the rumor.”
Upon futures trading starting at both major exchanges, Bitcoin began to crash down from its highs (while altcoins sky rocketed and then crashed themselves). In the time of the quick rise of crypto and the subsequent crashes / corrections the market favored only those who shorted the market, traded nimbly, or held well timed futures contracts and likewise it severely punished HODLers (AKA investors)… especially those who bought after November – December. <— The effect of “the news.”
Bitcoin made three cycles starting in November 2017. The first was very very volatile (see the image below; that first hump is the first cycle). The Second less so. And the third one we just witnessed even less so (it was almost a stable cycle give or take a few big candles).
With each cycle, less and less traders stayed in the market (judging by volume; this is my assessment, not hard fact).
TIP: To better understand what I’m saying, see the image below. The grey bars are volume, the green and red bars, AKA candles, represent the price Bitcoin traded at in a period of time; notice that the spread of each bar AKA candle gets smaller as time progresses… this is stability essentially; but stability at the expense of decreased volume (likely resulting from those burned out or tapped out fiscally from the previous cycles).
In other words, futures brought stability, but only after causing the most unstable period in Bitcoin’s history since 2013 – 2014 (and the first period since 2015 to favor traders over HODLers).
To me this is a lot like bring peace through war. I cannot argue that the result of the war was peace, but I also can’t ignore the means by which peace was brought. And, in this sense I wonder if war really was the only way to bring peace, or if it was also partly an excuse for the few to accumulate capital at the expense of the many.
Anyway, what is done is done. The real question now is, “what happens next?” Does Bitcoin find stability from here forth, trading at or around a price that can sustain miners (thereby sustaining the system)? Or, does Bitcoin now start to grind down slowly like it did in 2014?
If it finds stability, then we have a stronger argument that it was worth it, and that the previous process was justifiable collateral damage. If it grinds down, then it calls the whole gambit from November to today into question.
In a way, in my opinion, it is what happens over the coming months and years that will help us understand the true effect of futures products and their effect on the crypto market.
One thing I can’t deny though is that each market cycle since November has been increasingly less volatile. And while the masses who bought and held Bitcoin since November are either down or have broken even (depending on their timing and the degree to which they also traded or utilized derivatives effectively), thus making Bitcoin a poor investment in the medium term for many (especially when you consider the tax implications due to the timing of the bubble pop), stability could make Bitcoin something it hasn’t been in a while… a usable payment system.
That is to say, the process by which we got to where we are potentially are at has been messy and benefited only certain types of people (and at the expense of the many), but the process has also potentially taken us to a point that will make for a better tomorrow. That is good, from some perspectives. It is also something to keep in mind if events like this repeat again in this market or another one.