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Why Bitcoin’s Price Correction Occurred

Traders Magazine Online News, June 12, 2018

Michael K. Spencer

This is why the Crypto Singularity of December 2017 was so short-lived.

We all remember the Crypto Singularity of December, 2017. Altcoins and the cryptocurrency market grew enormously with Bitcoin’s price even reaching above the $ 19k mark.

However, in a startling price correction, Bitcoin’s price started to fall on December 20th, and by early February it had even gone lower than $ 7k. So what caused it? It was not a bubble, if it had been, the price of Bitcoin would have popped and gone to zero.

More studies and articles seem point to the launch of Bitcoin Futures being to blame.

Bitcoin’s fall from almost USD 20,000 is directly tied to the launch of a futures market, according to research from the San Francisco Federal Reserve, published in May, 2018.

The so called crypto singularity began in earnest at the end of October, 2017 when CME Group, the world’s biggest exchange operator, announced plans to launch bitcoin futures contracts that would give institutional investors exposure to the new asset class. However, the futures hype may have also caused significant changes in Bitcoin’s valuation that crippled some of the public enthusiasm over crypto in subsequent months.

The Real Reason Bitcoin’s Price Lost Half of its Value

According to CNBC:

Bitcoin’s drop following its peak near $20,000 was directly tied to the launch of a futures market, according to new research from the San Francisco Federal Reserve.

“The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence,” four researchers say in the regional Fed bank’s recent Economic Letter.

The cryptocurrency’s highest price lines up with the day the Chicago Mercantile Exchange, or CME, introduced bitcoin futures trading.

Crypto market manipulation by big players seems to have been at work here with the mainstream suppression of Bitcoin hype, that was getting a bit out of control for the business model of more mainstream financial services.

A Little Bit of History

According to the paper, after Bitcoins launch in January 2009, the dollar price of a bitcoin remained under $1,150 until February 22, 2017, when it increased exponentially for about 10 months, as shown in Figure 1 (see above).

This explosive growth ended on December 17, 2017, when bitcoin reached its peak price of $19,511. Notably these dynamics aren’t driven by overall market fluctuations, as shown by comparison with the Standard & Poor’s 500 stock index.

CME’s Launch of Bitcoin Futures Coincides with the “Bitcoin Correction”

The peak bitcoin price coincided with the day bitcoin futures started trading on the Chicago Mercantile Exchange (CME).

2017 was the Year Cryptocurrencies Became Mainstream

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