It has been clear after the launch of CME and CBOE futures back in December 2017 the impact of futures in the bitcoin price retracement, but having an ex-government official admitting it is a new thing we didn’t hear before.
In an interview with Coindesk, the Commodity and Futures Trading Commission (CFTC) chairman Christopher Giancarlo takes credit that it was they who brought down the bitcoin price after the bull run in 2017 saying:
“One of the untold stories of the past few years is that the CFTC, the Treasury, the SEC and… Gary Cohn (the National Economic Council director at the time) believed that the launch of bitcoin futures would have the impact of popping the bitcoin bubble. And it worked,”
He further explained that in a market with only belivers there was a need for a balance where pessimists can express their opinion, but they can’t so we accepted the creation of CME and CBOE futures. This derivative product allowed bitcoin pessimists to place their bets creating a more free market.
“If you don’t have that derivative, then all you’ve got are believers [and] it’s a believers’ market.” He said.
Giancarlo concluded the interview saying:
“I believe it shows the power of markets to bring discipline to prices.”
However, taking all the credit seems a bit a long shot. Bitcoin retraced 85-90% after every bubble. And speaking about derivative markets, Bitmex, a platform for the pessimists to short bitcoin was available from 2014. However Bitmex is maybe is not considered a regulated trading platform, but eToro is a regulated one and it allowed shorting bitcoin since 2014.
But maybe these 2 platforms were unable to pop the bitcoin bubble because they are retail oriented, so we needed the institutions on CME and CBOE to do that job.
However, when we look at the charts we see that when futures were launched the price did not drop immediately and the volume on CME was 12,000 bitcoin daily compared to the 200,000 bitcoin on spot exchanges, also CBOE volume did not pick up until 17 January when bitcoin price already drop to $10,000.
So the theory to open the gates of derivatives to the pessimists so they will short bitcoin doesn’t seem to have been happening at the time of launch. If the theory was true the prices would have collapsed overnight a thing that did not happen.
Maybe the main reason why the bitcoin bubble pooped was that it pumped in the first place, to unreasonable levels and had nothing to do with pessimists that needed a platform to short the asset without touching it.
Speaking about shorting, there is still an ongoing debate if it should be allowed and it is illegal in many countries. While Giancarlo takes credit for having popped the bubble to avoid a similar scenario to the GFC bubble, yet he forgets that naked shorting was banned succeeding the Global Financial Crisis when it started helping for the “price discovery”.
The effect naked shorting creates some people like to call it “price discovery” and some “price manipulation”.
There might be many components that caused the 85% bitcoin correction after December 2017 and it is clear that CME and CBOE launch news was used to pump the price in the first place and then was used to suppress it, r it would have happened anyway with or without CME and CBOE.
Now we are heading toward the next bubble and it is interesting to see who will inflate it and then who will be the bubble popper.
However, those who believe in bitcoin and hold it form a long time maybe will wait for a day when they do not need to convert their bitcoins into FIAT in order to spend it.
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