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Bitcoin Price Manipulation: Unusual Movements Spotted Shortly Before Expiration of CME’s BTC Futures

New research is revealing unusual Bitcoin price movements shortly before the expiry dates of the Chicago Mercantile Exchange’s (CME) BTC futures contracts.

As observed by Arcane Research in a report published by Norwegian news outlet Kryptografen,

“[Since January 2018,] Bitcoin [has been] falling [by an] average 2.27% towards settlement each month. In comparison, the average on a random day over the same period is hardly negative, with a fall of only 0.06%.”

Source: Arcane Research/Kryptografen

Introduced in December of 2017, CME’s Bitcoin futures expire monthly and can only be traded by qualified investors. 

Seemingly right on cue, the price of Bitcoin plunged this week, ahead of tomorrow’s CME Bitcoin futures expiration date.

Last year, Thomas Lee, head of research at Fundstrat Global Advisors, also observed significant declines shortly before a majority of CME Bitcoin futures settlement dates.

Analyst at Arcane Crypto Bendik Norheim Schei writes,

“These futures contracts are optimal for manipulation. They are settled in dollars and not in bitcoin.

The price for the settlement is determined by the bitcoin price in the underlying market. Thus, it is never actual bitcoin that change hands, and it is just an overlying market traded in dollars.”

Schei suggests going long by buying “physical” Bitcoin in spot markets and then shorting the cryptocurrency by selling BTC futures contracts. He says that this strategy can help traders secure their position against extreme price fluctuations. 

Schei notes,

“If the price of bitcoin goes up, the trader loses on the short position, but this is counteracted by the long position rising in value.”

After adjusting for large outliers by examining the median instead of the average, the overall price movement is positive on randomly selected days (plus 0.04%). However, the price drops significantly by 1.99% (on average) before the Bitcoin futures settlement date, Schei reveals.

He further notes that since January of last year, a total of 306 out of 608 days have been positive, which corresponds to 50.3%. Moreover, a positive daily average has been recorded during 9 out of 20 months, which corresponds to 45%. 

Schei explains,

“In other words, the period that is analyzed is characterized by an even relationship between positive and negative days. But the day before the settlement we see something completely different.”

Bitcoin has fallen sharply before the BTC futures expiration date during months where the daily average return was relatively higher, nearly 4% at its highest in May 2019, Schei points out.

He concludes,

“It is highly unlikely that the price falls in advance of CME settlement should be caused by mere coincidence. The [data] supports a hypothesis that the bitcoin price is manipulated in advance of CME settlement. However, the figures do not say anything about ‘deliberate manipulation’ or, for example, only a result of investors’ strategy of hedging.”

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