Last week I noticed a bounce in BTC (and altcoin) spot markets on expiry of CBOE futures.
Essentially, large players are using the futures market to hedge their underlying spot position.
As long as there is a contango (futures price trades at a premium to spot), there's a valid hedge opportunity on any price drop.
This means that if a large player is long a future at 18k and long the spot market at 17k, there's a traded premium per contract of $1000.
If the price falls then to 10k in the spot market, it's likely that the premium will remain. If both positions are then closed out, you net the (premium * amount of futures contracts bought) - the underlying spot position.
It's likely that with the availability if hedging in this nature, whales have ground down the market to shake weak hands out - they've built up tension where smaller traders do not know whether to hold or get rid, and the weak hands have jumped out.
The whales have not really lost any money since they have the hedge, but can now buy back at a 50% discount vs the start of the year.
This Friday, I'm expecting a bounce across all coins since most coins are tied to the BTC price move.
Comment
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Short the futures* not long! Apologies, sometimes I type too fast!
I think you have it backwards. If a whale is long futures at 18k and the spot price falls from 17k to 10k before expiration, wouldn’t the contract expire worthless? The spot price needs to rise for the trade to be profitable. The incentive is to push the price higher not lower. The ones who profited on CBOE sold futures.
FinkPro
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@Wolfgang34, Ooops, sorry, I meant short the futures contract, not long. Also, they do not settle the contract, they close before the expiry at 4pm ET. My mistake, apologies for the confusion.
Enslaveyourcapital
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Great post but I do have one question. Do you believe that btc will actually continue the bullish trend after this bounce to the upside? Or do you think it will experience that bounce but will continue the downward momentum? Whats stopping those whales to drive the price down to 1000? The only reason why i believe they won't do that is because they could, perhaps, be afraid that it will take bitcoin to long to recover from such a dramatic drop in price.
BillyNare
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@cataldo, I think 1000 would be seriously dramatic. That would kill this whole crypto thing for a while. Why would anyone want that including the whales? There are just too many market participants at this point to let crypto die. This is highly unlikely in my opinion. Most likely scenario, we will retest previous lows as it happened in the past and we will see a meteoric rise following. All we can do is look at the past for clues and do our best to plan for the future.
FinkPro
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@cataldo, I dont see any reason for it to go down to $1000 to be honest. We are already at median price at the moment.