The Bitcoin week wrapped up
The View from LaSalle Street #5
With Bitcoin futures settling down in the 8% per-day-range this week and currently down 18-20% here Friday midday (Remember, we’re -6 hours GMT), we are seeing the chickens-coming-home-to-roost ugly side of the “legitimization” of the BTC craze. And “craze” it indeed is.
However – this Crypto collapse is less Tinfoil hat, as many of my conspiracy-theory friends would have you believe (with much circumstantial evidence) and far more indicative of NORMAL market forces.
As markets gain legitimacy (and actual liquidity) they normalize prices. They further weed out the “lesser” versions of their own species. This has been happening (on Earth – for my afore-mentioned group of theorists) since markets of each, and every kind opened their proverbial doors —– millennia ago.
BTC is stabilizing in the $13,000 area as the BTWhales and BTFD’ers** ((Thanks to Zerohedge – (look it up y’all)) are taking back control on or about today’s near-$10,000 lows. A couple of the “cash” exchanges, including GDAX and Coinbase have simply “closed” by declaration, as they take stock of client positioning, and, no doubt, the effect this kind of volatility has on their own holdings. These self-proclaimed legit clearinghouses of “spot” Crypto can do about anything they want to do to “protect their clients”. The CME futures halted trading at the Limit-Down level (12,265) per their written mandate. Your legitimate question might be: what, exactly, does this mean?
Honestly, it is probably too early to say exactly what’s behind the moves, and surely, it’s way too early to assign motives to them – but we can look to a few facts to begin to develop a working thesis. Some blogsite regulars have done some deep diving into the motives behind exactly who is participating in these marketplaces and for what (nefarious) reasons they might be supporting it. They’ve decided that “Bitcoin, as a potential alternative to sovereign fiat, is being strangled in the crib right now via futures in the US, and its BANNING in the Asian markets” (from Marketslant.com). The View tends to agree here.
The dawning of the age of regulated markets in BTC will have tremendous implications in a number of areas, importantly including existential reasons such as: its self-assumed replacement for fiat currency, its place in “regular homestyle” kitchen-table finance, its role in investment portfolios from the huge hedge fund esoteric to the mainstream 401-K’ish, its ability to generate a secondary marketplace that generates derivatives (and therefore commissions), and finally its role in future blockchain technologies – (which will succeed on its own, regardless of crypto-coinage’s relationship).
We will deal with each, and every one of these issues in future posts right here.
Meanwhile, important to today’s discussion, is this event’s relationship to Price Discovery and our ability to predict future rates; plus, most importantly, how we all can access the investment. Hence the futures market interest. What can be clearly demonstrated by the action of this week draws but a single conclusion: the Futures markets, which affords the “common-man” investor their FIRST access to this elite investment, is demonstrating exactly what the use of leverage allows. And in this week’s case the answer is: is being severely crushed.
Evidence? On the highest volume day by far in its initial CME week, we are seeing the retail blowout we’ve been expecting. The math is simple enough, the two highest volume days (around 1000 contracts) has been doubled here by midday CME trading (nearly 2000 front-month contracts) – with prices down 50% from the weekly highs. The damage has been done. The leveraged (long) common traders have been closed out, but will be given another opportunity to buy in again, naturally, at lower levels. Any shorts out there in both the futures AND the cash markets have surely done some covering at the lows to some extent **, and we will be settling down some 18-ish% on the day.
Motives? Come back next week and we’ll break down the who/why/where of this story. Is there nefarious intent, as some bloggers would have us believe? I tend to side with “normal market forces”, but even I can be dissuaded given good hard evidence.
We will see, and I hope you come back to – and enjoy – The View from LaSalle Street here on ForexFlow. We’re delighted to be contributing here with Ryan’s new baby. Still in its Cradle, we think this one’s a keeper, folks.
Meanwhile – a very Merry Christmas to those of you so celebrating. See you next week. “Chicago” Bill Hoeter.
William “ChicagoBill” Hoerter has worked in the financial services (Spot FX, Futures and Options) for 35 years, proving that old men may still be semi-lucid and analytical. In working on trading desks, he used to be the enemy but now helps those of us who love to trade understand the mindset of the Institutions and their counter-programming of the system against the average trader.
His new View from LaSalle Street is an attempt at helping to clear those misdirections.
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