Traders have been working on this craft for centuries, thus leading to many peculiar instruments for trading. One such is a futures contract, an agreement to buy or sell an asset at a future date at an agreed-upon price. This standardized agreement is meant to hedge positions and consequently reduce the overall risk. More importantly, it allows for a settlement to be in dollars, boosting liquidity. It was expected that expiring futures contracts would boost trading on Friday. That, as we saw, didn't really happen.
Most cryptocurrency traders had expected that there would be a lot of activity in the market late on Friday. This was based off the knowledge that the CME Groups Bitcoin Futures Contracts were due for expiry, and created a buzz expecting a spike in value. However, from the onset, this looked unlikely. Social media was debating the times, as there was some confusion about the exact timing of the expiration of these futures contracts. Some thought it would be at 10 pm UTC while other thought it would be earlier at 4 pm. Perhaps surprising, considering the team at CME Group had noted on their website that
“Termination of trading: Last Day of Trading is the last Friday of the contract month. Trading in expiring futures terminates at 4:00 p.m. London time on Last Day of Trading.”
Unfortunately, as many found out, the price of BTC did not jump up at either of the two discussed times. The price of BTC is still a shade under $4,200. It seems to have found a new level of relative stability moving between $3500 to $4500, since last week.
It had been long assumed that, like its normal stock counterparts, the value of Cryptos will be buoyed by the expiring future contracts. Research work by Cindicator, a fintech company that builds predictive analytics by merging collective intelligence and machine learning models, had warned in October, that this was not going to be the case.
The report worked on by the company's analytical team and quant researchers squarely debunked the theory that the price of Bitcoin was affected by expiring futures contracts of both the CME Group and CBOE. Their head of Analytics, Simon Keusen, explained that Crypto had no simple rules to base futures expiration dates for its trading. He noted that
“Looking at past movements of Bitcoin’s price, we can see that there is no golden rule for trading based on futures expiration dates. Overall market trends can influence Bitcoin prices in a much stronger way.”
The report is available online and goes on to stress that there was no discernible correlation found between prices and the expiration of BTC futures contracts. Evidence of this can now be seen by the unenthusiastic market flow on Friday. Simon also added that the objective was a focus on “presenting different reasons for why certain market movements might happen and encouraging research and the use of analytical tools.”
With signs of a stabilizing market, it would have been a shot in the arm for the industry had the expected surge happened. However, these events only further highlight what a unique opportunity this industry is.