Futures Did Not Crash The Bitcoin Price

Longtime readers know I am largely a crypto skeptic. Specifically I am one of those annoying the-principles-underlying-crypto-are-undeniably-transformational-but-I-am-skeptical-of-the-investability-today people. However, there is one crypto myth I cannot really abide and that is the myth that the start of futures trading is responsible for the crypto drawdown that started in January 2018.

I first wrote about this issue of Bitcoin futures here.

But this isn’t that complicated. The reality is that BTC futures volumes are low. Like really low in comparison to volumes for BTC overall. Below is the data for BTC:

BTC_Trading_Volume
Source: data.bitcoinity.org

And here is the data from CME Group for its contract (note: multiply by 5 because each CME contract is for 5 BTC):

CME_BTC_Futures_Volume
Source: CME Grou

Let’s double that to account for the fact that CBOE offers its own Bitcoin futures. Even then you are talking about maybe 30,000 BTC worth of total volume. I struggle to believe these meager volumes are pushing the market around.

More importantly, just because I sell a BTC futures contract does not mean the spot price of BTC automatically drops.

Someone has got to push the sell button in the spot market for that to happen. My selling of BTC futures does not in and of itself compel anyone to sell spot BTC. It may encourage someone to to come in and take a position based on how my order impacts the term structure of BTC futures in relation to the spot price. But that is a very different proposition from “I am short Bitcoin futures so now the spot market is falling.”

Now maybe there is data out there beyond someone lining up dates that shows a clear causal relationship between the BTC selloff and the start of futures trading, but I have yet to see it (if you have such data please get in touch).

Otherwise, repeat after me: correlation is not causation.

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