December 17, 2018
On the anniversary of the price of Bitcoin reaching its historical high of nearly US$20,000, this article will try to explain why the price of Bitcoin has steadily declined by over 80% this past year.
One year ago, both the price of Bitcoin reached its historical high and a synthetic-derivative (1) product called a “bitcoin futures contract” started trading on two exchanges in Chicago – one, the Chicago Board Options Exchange (CBOE), and the other, the CME Group (a company formed from the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade in 2007).
The CBOE is the largest options exchange in the world, while the CME is the largest futures exchange in the world. Both are multi-billion-dollar companies that dominate their respective markets, globally. The CBOE and the CME are the only two companies in the world that have been given formal approval by the U.S. government to list Bitcoin futures. (2)
The only other company to be authorized by the U.S. government to deal in Bitcoin derivatives is options trading firm LedgerX, a company with numerous former or current government or Goldman Sachs employees and numerous links with U.S. government agency CFTC (LedgerX will be a topic of a future article).
The CBOE offers a Bitcoin futures product that mimics the movement of one Bitcoin, while CME’s Bitcoin product mimics the movement of five Bitcoins. Both of these companies can, if they so wish, sell an infinite amount of Bitcoin futures as there is no limit to their ability to sell what are essentially bets on their exchange.
Both the CBOE and CME are owned by the largest banking and financial institutions in America such as Goldman Sachs, Fidelity, Blackrock and Capital World Investors – all of these companies each have under their direct management trillions of U.S. dollars (not billions, but trillions).
The same bankers that control the Fed and Washington D.C. own the only two U.S. government authorized exchanges that sell Bitcoin futures, and both of these exchanges settle their Bitcoin futures with fiat U.S. dollars rather than Bitcoin. This means that any dollar invested in Bitcoin futures creates zero demand for real Bitcoin because the money that goes to the CBOE and CME Bitcoin futures contracts stays with these institutions – even though they have so much of it already – and no actual Bitcoin is ever bought or sold on either of these two Bitcoin futures exchanges. The CBOE and CME are essentially glorified gambling dens that take bets and settle exclusively with U.S. dollars and never the underlying asset that is Bitcoin.
Arbitrage
Leading Wall Street banks such Goldman Sachs and JP Morgan, and numerous hedge funds around the world commit billions of dollars to conduct what is called “arbitrage trades”. These riskless arbitrage trades (not to be confused with the oxymoronic risk-arbitrage) is a risk-free trading strategy where trades are executed to take advantage of any mispricing of an asset in two different markets where the same asset bought in one market is sold simultaneously in another market at a higher price – thus allowing arbitrage traders to lock in profits with zero risk.
Some of these arbitrage opportunities earn only a few percentage points per trade, but with an almost endless supply of money from the Fed, Wall Street banks are able to amass tremendous aggregate profits due to their ability to commit billions into any arbitrage opportunity.
Within banks, arbitrage desks are manned by math wizards that scour global financial markets to identify arbitrage opportunities to skim as much profit it can until such opportunity no longer exists. As the top banks in the world such as Goldman Sachs, JP Morgan and Bank of America are allowed to borrow money from the U.S. Federal Reserve (the Fed) at near zero interest rates, these banks, who in turn own the Fed, have essentially an unlimited supply of near zero cost money to take advantage of any arbitrage opportunity that arises in any market in the world.
And, if for some reason Wall Street banks mess up and lose billions on a trade they miscalculated on, they have and will be bailed out yet again by the Fed as these Wall Street banks and their shareholders own the Fed themselves. As an example, in the 2008 financial crisis, Wall Street banks were provided free money to cover trillions of dollars of bankrupt positions and were handed by the Fed a mere US$30 trillion of bailout money, which bankers promptly used to pay themselves their annual exorbitant year-end bonuses as if nothing unpleasant had ever occurred.
The Fed
The Fed has the ability to print as many U.S. dollars as it chooses as the world financial system has been structured by the U.S. after WWII to allow it to dominate the world economy. The U.S. enjoys a financial position today that is unprecedented in human history – it has the ability to print money out of thin air, spend as much as it wants on weapons and wars on innocent civilians, and have the rest of the world pay for all of it with continued increases in the global price of the essentials in life such as energy, food and housing.
American hegemony over the world centers around the ability of the U.S. government to spend as much money it so chooses to perpetuate its global dominance. With such an advantageous position, elements within the U.S. government will and have committed grievous atrocities across the globe to continue its dominance.
Money is portable power. And, if one has access to an infinite supply of money, one essentially has infinite, unrestricted power.
Anything to Perpetuate the U.S. Dollar and World Dominance
Since 9-11, numerous excuses have been offered by Washington to justify the destruction of two oil rich countries, Iraq and Libya, by the U.S. and its European allies.
The invasion of Libya in 2011 followed the declaration of Libya’s leader Gaddafi in 2009 that he would no longer sell Libyan oil for U.S. dollars, and would only accept payment in euros or gold-backed “dinars” (a single African currency backed by gold that Gaddafi championed when he was the elected leader of the 53-nation African Union). Within two years of the rejection of the U.S. dollar, Gaddafi was dead and the country that he ruled for 42 years was destroyed by America’s military.
Prior to the criminal invasion of the country by the U.S., Libya was the most prosperous country in Africa where every citizen was provided free education, free medical and dental care, and generous housing subsidies to newlywed couples. Gaddafi also made it illegal for women to be forced into marriage by their parents – Libyan women had the right to reject marriage if they so wanted. This of course is not a right today for women in most nations in the Middle East or Northern Africa – including America’s vassal-state Saudi Arabia, where women are treated as second class citizens.
The invasion of Iraq in 2003 followed the attacks on 9-11 – a treasonous act that was obviously conceived and executed by individuals within the U.S. government and Israel. Prior to the attack on Iraq by the U.S., Saddam Hussein had the gall of declaring that Iraqi oil that his country produced could only be settled in euros and no longer in U.S. dollars. In a few short years of Hussein declaring his rejection of the U.S. dollar, he was dead and Iraq became the chaotic mess it is today.
The power elite of the U.S. have proven to be quite willing to lie, cheat, and murder innocent people in the hundreds of thousands around the world to sustain their power and dominance over the world – it is without question that individuals such as Dick Cheney, George Bush, the Clintons, Obama and countless others in the U.S. government are simply some fairly evil people without any morals who are quite willing to murder innocent people so that they can continue their pampered, decadent lives in Washington D.C. - Niccolo Machiavelli would undoubtedly approve of Washington's willingness to do anything it takes to continue their unparalleled grip on power.
The Manipulation of the Price of Gold
The last point that requires discussion before delving into the mechanics behind Bitcoin’s decline over the past year, is the clear manipulation in the price of gold since its high of US$1,895 in 2011.
Gold or any other form of money, such as Bitcoin, is a possible alternative to the U.S. dollar. Money, by definition, should provide: a means of storing wealth, a medium of exchange and a unit of account. Anything that has the slightest potential of becoming a viable alternative to the U.S. dollar as a form of money has and will be attacked by the U.S. government and the Fed – for if the U.S. dollar loses its preeminence in the world, the U.S. government will no longer be able to spend trillions of dollars on its military, bribe leaders of countries around the world, and continue its global dominance.
Knowing how gold is manipulated, allows for an understanding of how the price of Bitcoin has been driven down (quite easily, in fact) over the past year using Bitcoin futures.
It is generally accepted by gold market participants that the price of gold has and is being manipulated by “someone” (could it possibly be the Fed?) with an enormous, almost infinite supply of money, able to sell futures contracts on the CME exchange without much care to the extreme financial risk inherent in futures contracts. Someone keeps selling gold futures contracts that has forced the price of gold from its high of nearly $1,900 in 2011 to levels near $1,200 today. Whenever the price of gold starts to move up, futures contracts are sold to drive the price down, which in turn, causes the price of physical (real) gold to drop as well.
Similar to Bitcoin futures, gold futures in the U.S. are settled in cash and not actual gold. And similar to Bitcoin futures, gold futures are synthetic derivatives that are simply bets and create no real demand for the underlying asset that it purports to represent.
CBOE, CME and Bitmex – the Counterfeit Money Traders
There are primarily two ways in which synthetic (fake) futures offered by the CME and the CBOE impacts negatively the price of gold and Bitcoin.
First, although it is generally accepted that the involvement of establishment companies such as the CBOE and CME in gold and Bitcoin brings credibility to these markets – it shouldn’t.
CBOE and CME futures are not real in the sense that no physical delivery of the underlying asset ever takes place as with traditional futures contracts. However, when gold or Bitcoin futures contracts expire each month, buyers and sellers settle their positions in U.S. dollars and not the physical asset itself, thus creating zero demand for real gold or real Bitcoins. In fact, these fake futures contracts offered by the CBOE and the CME are essentially counterfeit pieces of paper that can be infinitely reproduced by the CBOE and the CME – just like the U.S. dollar.
What the CBOE, CME and the U.S. government have done is create a counterfeit market of potentially infinite fake Bitcoin that are simply pieces of paper and nothing else.
The primary value proposition of gold and Bitcoin is its limited, untamperable supply – investing in gold or Bitcoin by true proponents of gold or Bitcoin with synthetic CBOE, CME or Bitmex futures is simply foolish as it does nothing to reduce the available supply of the actual asset itself and does nothing to create a positive impetus for higher prices with a reduced supply of the underlying asset.
However, with an unlimited supply of counterfeit pieces of paper offered by the CBOE, CME (and counterfeit cryptocurrency exchanges such as Bitmex that trade in nothing but options and futures settled in U.S. dollars), the finite nature of these assets is destroyed.
By offering pieces of paper rather than the physical asset itself, the CBOE and the CME (and Bitmex) have been siphoning off demand and money from true markets where real assets are bought and sold.
Anyone investing their money with Bitmex, CBOE or CME should know that they are buying fake, counterfeit pieces of paper and are helping to destroy the price of Bitcoin.
If you want to have exposure to Bitcoin or any other cryptocurrency that has a limited supply and is provably secure such as Cardano or Zcash, get your own wallet and store it yourself and not at an exchange – and definitely don’t invest with Bitmex, the CBOE or the CME – or any of these counterfeit exchanges that trade only in cash-settled futures and high-risk options.
Mechanics of Arbitrage Trading Utilizing Synthetic (Fake) Futures
The second manner in which the U.S. government manipulates the price of gold and Bitcoin is by creating consistent selling pressure in the synthetic futures market and thus creating arbitrage opportunities for banks and hedge funds. The Fed can drive the price of the synthetic (fake) futures lower by simply selling these pieces of paper that can be infinitely created out of thin air and sold into the futures market until it drops to a desired price which will attract arbitrage desks to jump in to secure riskless profits. As the price of the synthetic futures is artificially forced down, there will be a difference in the price of Bitcoin futures and real Bitcoin.
Due to the mispricing of Bitcoin futures and real Bitcoin – when theoretically they should have the same price – arbitrage desks will simply buy the cheaper futures contract on the CME or CBOE forced down by the Fed and simultaneously these traders short actual Bitcoin on an exchange such as Gemini where real Bitcoins are traded. And with this added artificially created selling pressure of real Bitcoin due to arbitrage players shorting Bitcoin, the price of Bitcoin itself eventually drops. Arbitrage players continue to trade and take arbitrage positions as long as there is a difference in the price between the futures price and the underlying asset.
As long as the U.S. government and its proxies continue to sell fake, counterfeit Bitcoins in the futures market at lower and lower prices, the price of Bitcoin can only go down. And, as arbitrage desks place their positions and short real Bitcoin, market sentiment deteriorates and further selling pressure injects itself into the cryptocurrency space.
Final Thoughts
It should be quite apparent that those in power in the U.S. are quite willing to even murder innocent women and children to perpetuate its dominance over the world. Manipulating gold or Bitcoin is mere child’s play when compared to the mass murder of so many people in Iraq and Libya to sustain American hegemony.
The only reason America has the ability to dominate the world is its ability to print as many U.S. dollars it so wishes to pay for its massive military and financial shenanigans in futures markets to destroy anything that it perceives to be even a minor potential threat to itself and its power base, the U.S. dollar.
Although I am not a Bitcoin proponent due its lack of privacy, I am a proponent of blockchain technology projects that are headed by strong, dedicated teams such as IOHK headed by Charles Hoskinson or the Zcash Company headed by Zooko Wilcox.
However, for the time being, the cryptocurrency market will have difficulty recovering from current price levels. As the U.S. government and the Fed have a near endless supply of money to manipulate markets, it may take some time for the price of Bitcoin to recover.
My recommendation now is to take your time in researching, in-depth, different projects utilizing blockchain technology. It may not be Bitcoin, it may be something else, but at least the U.S. government is helping us out by lowering the price of Bitcoin so we can buy what we want in the cryptocurrency space at our leisure at drastically reduced prices from their highs exactly one year ago.
And finally, be sure to keep your crypto assets in your own personal wallet that you control and not on an exchange like Bitmex and definitely not with the CBOE or the CME. For if you entrust your money with these counterfeit Bitcoin market makers, you are only helping the U.S. government continue its suppression of Bitcoin and all the potential it has for our future.
(1) “Synthetic-derivative” is Wall Street mumbo-jumbo terminology to portray what they are selling sound complex and sophisticated, when in fact it is not. Wall Street mumbo-jumbo such as “synthetic-derivatives” or “synthetic collateralized debt obligations” may appear as if they are something academically sound and financially complex, but they are simply just bets. It's no different than calling a bet at a Black-Jack table in Vegas a “Synthetic-derivative based on the underlying financial instrument of a deck of playing cards,” i.e., it’s just more Wall Street b.s.