Bitcoin Price Awaits Possible Spoiler Ahead of July Futures Close

Bitcoin has historically performed poorly leading up to CME futures expiry, a correlation traders might not want to ignore.

AccessTimeIconJul 25, 2018 at 4:30 p.m. UTC
Updated Sep 13, 2021 at 8:12 a.m. UTC
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Bitcoin traders may have their eyes on a different kind of chart this week.

That's because Friday, July 27 is the date that bitcoin futures contracts offered by derivatives giant CME Group are scheduled to expire. A financial product that lets institutions and professional traders long or short the crypto asset (betting on its future performance), history shows the price of bitcoin drops 7.89 percent on average in the five days prior to a contract expiration.

As such, data suggests the event could trigger a healthy pullback in prices for the cryptocurrency.

Still, other factors may be at play this time around. Investor interest in the bitcoin futures market is seeing substantial growth – perhaps best depicted by a tweet from the CME Group which stated that their bitcoin futures product was up 93 percent in volume and 58 percent in open interest in Q2.

CME futures continued their growth into Q3 including a record volume of contracts set this past Tuesday, equivalent to 64,390 bitcoins with a notional value of $530 million, according to another tweet from the CME Group.

While the numbers are encouraging for widespread adoption of bitcoin investment, many have argued bitcoin futures negatively impact price. Prior to the introduction of bitcoin futures, there were few options for traditional investors to short the market, and this particular investment type has accomplished just that, allowing bears to speculate alongside the bulls.

Again interest to what's ahead is that the price of bitcoin has been on the rebound over the last few weeks where at press time, bitcoin is trading at $8,182 - printing a 41 percent increase from its annual low ($5,799) set less than a month ago, according to CoinDesk's Bitcoin Price Index.

That said, the dramatic growth has led to overextended technical charts, including the highest daily RSI level since December, which could be a factor in helping history repeat.

Past precedent

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As seen in the chart above, the price of bitcoin recorded a loss in the five days leading up to the expiry on four out of the six occasions where futures have expired.

Most notably, in the days prior to the close of the January and March contracts, price fell 13.05 and 20.45 percent respectively (closing price on expiry day subtracted from opening price of fifth day prior).

The average performance of the four negative occasions comes out to a depreciation of 12.82 percent while the remaining two occasions recorded a meager average gain of 1.69 percent.

Perhaps not coincidentally, Bitcoin reached its all-time high of $19,891 (on Bitfinex) on Dec. 17, 2017, the exact day CME introduced their first bitcoin futures product. Price has been on a steady decline ever since and figures currently reflect a 58 percent depreciation from the high mark.

While it should not come as a surprise for prices to drop in a bear market, it will be interesting to see how future's impact the price of bitcoin, if at all, if the cryptocurrency returns to its bullish glory.

: The author holds BTC, AST, REQ, OMG, FUEL, 1st, and AMP at the time of writing.

Image via Shutterstock; Charts by Trading View

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