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Here’s How Bitcoin Futures Help Predict a Bitcoin Bear Phase

When to expect the next Bitcoin bear phase

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One More Reason for a Bitcoin Bear Phase

Bitcoin (BTC) is one of the most volatile modern-day assets. Since the beginning of the year, we’ve seen it enter into a bearish phase each month. Now, while the decline has usually been accompanied by negative Bitcoin-related news such as a regulatory crackdown or a hack or subdued market sentiment, there is another key factor that seems to be coinciding with (and who knows maybe contributing to) the decline in the price of BTC; Bitcoin futures.

Our Observation of Bitcoin Futures

We drew up the Bitcoin price chart seeking any relationship between Bitcoin futures and a BTC bear phase (chart above). What we could figure out is that Bitcoin (BTC) usually develops a bearish mood immediately preceding a Bitcoin Futures contract expiration date. This relationship is more pronounced with the CBOE Bitcoin futures, which expire two business days prior to the third Friday each month; hence, Jan 17th, Feb 14th, and Mar 14th – marked in red in the chart above. The yellow markers represent the CME Bitcoin futures expiration date.

The chart above is instrumental in highlighting the relationship that the Bitcoin futures expiration (especially the CBOE) has come to develop with the price of Bitcoin (BTC).

Large Short Position Holders to Blame?

Now, it is widely known that Bitcoin futures are majority held by institutional investors, asset managers, and/or hedge fund houses. And the very basic futures contract rules state that:

  • Short futures profit from a fall in the price of the underlying, while
  • Long futures profit from a rise in the price of the underlying.

So, the market opinion follows that holders of short positions on these Bitcoin futures attempt to drive down the price of the underlying, which is Bitcoin (BTC) in this case, as the expiration of these contracts draws near. While there is less evidence to prove this observation, it remains one of the probable causes of Bitcoin price volatility every month.

What Strengthens This Belief?

While other regulatory and news-related factors have been prevalent throughout the past year, Bitcoin futures only came into existence in December 2017. The CBOE Bitcoin futures were launched on December 10th, 2017, while CME launched their Bitcoin futures a week later on December 17th 2017. A quick look at the Bitcoin (BTC) price chart for the past year (above) indicates that monthly dips and an increase in volatility in the price of Bitcoin (BTC) became more pronounced after mid-December 2017.

When to Expect the next Bitcoin bear phase?

So, for those who consider the above to be valid evidence for conferring that Bitcoin futures can be used to predict a monthly bear (price dip) phase for Bitcoin, and those who are always on the lookout for dips, here are the next few expiration dates to watch for. Bitcoin’s price usually starts moving south 3-4 days prior to expiration, reaching its short-term bottom on just about the expiration date. The CBOE Bitcoin futures (for which the relationship has been observed to be more pronounced) for the next three months expire on April 18th, May 16th, and June 13th. Bitcoiners may want to watch the Bitcoin price for a bear phase around these dates.

Similarly, the CME Bitcoin futures for the next three months expire on Apr 27th, May 25th, and Jun 29th.

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