This is the free translation of a Twitter ticket, proposed by @Cryptopiep , a cryptocurrency investor. Published in the early afternoon, it seemed to be interesting, because it allows to understand how large investment funds could have had an influence on the fall of Bitcoin - and by implication, on almost all markets.
Note that this is only a theory - even if it seems plausible, it is impossible to ascertain the reality (and magnitude) of such a phenomenon.
The arrival of futures
The causes of today's chaos are probably related to the actions of large hedge funds .
These could have been based on Bitcoin-backed futures contracts, so that they serve as a safety net . They could have exploited the only thing we are certain of in this market: a large number of new investors , who can easily panic and be forced to sell their assets during a "flash-crash".
On December 10, futures on Bitcoin were introduced. The first part of these contracts will expire tomorrow, January 17th .
For those who do not know, futures are asset purchase / sale agreements (here, Bitcoin) at a fixed date and price .
While the price of Bitcoin was around $ 15,000 on December 10, the first futures contracts, which will expire tomorrow, were backed by a relatively similar price. In a simplified way, this means that tomorrow:
The part of the "shorts" (which speculated downward) will have to give a bitcoin to the "long" part (which speculated on the upside) - and if they do not have one, they will have to buy some one at the market price. For their part, the "long" will give, in return, $ 15,000 to "shorts".
Also read: " What are Bitcoin futures? "
Imagine ...
Now imagine that you are at the head of a large investment fund .
It is December 10, 2017, and you are evaluating these contracts - and more generally the cryptocurrency market. It is clear that placing large sums on the "long" or "short" side is extremely risky - when the contract expires (January 17, 2018), the price could be as much as $ 50,000 or $ 500 .
As a result, large wagers on both sides are a bad choice for the institutional investor that you are - if you have to offer attractive returns, you can not afford to lose sight of the management. your risk.
However, you know one thing: the cryptocurrency market is still an emerging market , with many investors who do not necessarily understand how it works. And as you head a large investment fund, futures markets offer you a third option : to leverage large sums from both sides to create chaos in the markets - and benefit from them. , with very little risk.
Here's how you would do it:
On December 10, 2017, you bet on the short side of futures contracts . Suppose you want to do it for 10,000 BTCs. This means that on January 17th, you will have to repay 10,000 Bitcoins to "long" investors - and you will receive $ 15,000 for each Bitcoin ($ 150,000,000).
At the same time, still on December 10, you buy an equal number of Bitcoins at the market price (about $ 15,000 per Bitcoin).
This will allow you to cancel your risk / reward for futures: what you lose on one side, you will recover from the other - and you are therefore immune to changes in the price of Bitcoin. And, at the same time, you will have the opportunity to accumulate a significant share of the Bitcoin market , taking almost no risk.
CBOE futures on Bitcoin
A little before your futures contracts expire, you sell all of your 10,000 Bitcoins to the markets . You know it: this will trigger "stop-losses" and "panic sells" from small investors, allowing you to cause a fall in price - a price that will become lower than the one you just sold your 10,000 Bitcoins.
You then benefit from the decline you have triggered to buy your 10,000 BTC, for a lower price . This is particularly simple, as the funds you need are already ready to go back to the markets.
Then use the 10,000 Bitcoins that you have just bought back to honor your futures - you will be able to get $ 15,000 for each of these Bitcoins, and recover your initial investment .
Your profit : the difference between the price at which you sold the 10,000 Bitcoins in the markets, and the price at which you bought them.
Declines that should only be temporary ... but a phenomenon difficult to stop
For investment funds with sufficient capital to influence the markets, this should be relatively simple .
And this phenomenon explains the large number of decreases (which seem to come from nowhere) that we have witnessed today.
If I'm right about this cause (and I'm sure of it), there's good news: today's falls should only be temporary - and these are not signs to suggest more serious problems with the cryptocurrency markets.
The bad news is that I do not know how it could be possible to counter this phenomenon , which capitalizes on the fear of investors - it is a manipulation likely to arouse the greed of many "sharks" who evolve on this market.