January 16

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Bitcoin Futures Market and Defence Against Price Manipulation: Explained


The bitcoin futures market is a new way for investors to get exposure to bitcoin. Instead of investing in bitcoin directly, they can buy contracts that allow them to sell or buy bitcoin at a set price in the future. This way, investors can gain exposure to bitcoin without having to own the actual currency.

 

The market has been growing rapidly, and there are already a number of companies that offer bitcoin futures contracts. This is likely due to the fact that the future of bitcoin is still uncertain. Bitcoin is a new currency, and its future is still being debated by experts. Therefore, by investing in the bitcoin futures market, investors can gain exposure to the currency without having to worry about the future.

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Overall, the bitcoin futures market is an exciting new way for investors to get exposure to bitcoin. It’s also a way for companies to get exposure to a new and growing market. So if you’re interested in getting involved in the bitcoin marketplace, be sure to check out the available contracts!

 

As the crypto winter rages on, topics like price manipulation in the Bitcoin futures market have resurfaced. The notion that centralized powerful entities with enough skin in the game can use their holdings to manipulate the futures market in their favor has been circling for quite a bit.

The fact that Bloomberg did a piece in 2020, claiming that just under 2% of people owned about 95% of all Bitcoin in circulation, made it seem like the distribution of Bitcoin is centralized to an extent. Doubts of these whales having the power to manipulate the spot prices, especially the Bitcoin futures trading market went rampant.

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Are these claims scary? In this article, we will take you through these claims, and what defenses are in place to ensure that price manipulation in Bitcoin futures markets doesn’t occur.

Bitcoin Futures Market

There have been speculations of price manipulation being possible in the cash-settled markets. The claim is that with an infinite cash supply, governments, should they deem the necessity to manipulate the Bitcoin spot prices, can sell Bitcoin futures at a cash loss, with a claim that they could simply mint more money afterward to cover up for the said loss.

Theoretically, flooding the market with excess supply will drastically suppress the futures market price, driving down the prices of the underlying asset. While the number of Bitcoin, in and of itself is limited – you can’t really bombard the market with more Bitcoin to drive the prices – the same is not the case in the Bitcoin futures market, however. Since it’s cash-settled, publications like Bitcoin Magazine opine that people “who could print fiat money in unlimited quantities and wanted to drive down the price of Bitcoin” can dump the market with underpriced Bitcoin futures contracts.

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However, while it is true that governments have shown a tendency to print money, especially in the last couple of years, by printing more money just to drive the price of Bitcoin down, and at the same time, devaluing their own currency is a one-way, lose-lose ticket to economic downfall.

 

One of the more realistic ways to manipulate the Bitcoin futures market is by a technique popularly known as “banging the close”.  This has been a popular tactic since the crypto derivatives market was first introduced, and the Bitcoin futures market is no stranger to that topic as well.

Since Bitcoin futures are usually cash-settled, and there is no change of hands in Bitcoin itself, anyone with a large enough position can unduly influence the price of the underlying asset.

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For instance, hedge funds with a significant position in the underlying asset can sell bitcoin for a significantly higher/lower amount as the Bitcoin futures contracts near the date of expiry, in an attempt to manipulate the market. The Herbalife Shares incident is a very good example of how the same has already happened in the traditional financial markets as well.

What Can be Done About this?

While many are pushing for doing away with cash-settled futures, and thorough and strict KYC practices, we do not think this is the only defense against the price manipulation that is possible. Regulators across the world are working seriously to ensure that price manipulation does not occur at the scale that it’s built up to be.

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One of the senior regulators at CFTC (Commodity Futures Trading Commission), Andrew Busch, stated: “What we’re trying to do is show the people that the exchanges are the ones looking at the underlying cash contract to make sure it’s not manipulated. We’re going to continue to work with the exchanges to make sure Bitcoin is not manipulated in its use on the exchanges”.

And of course, just like Mr. Busch stated, we are keeping a close eye on the market. In fact, we reserve the right to annul fraudulent trades that were made in an attempt to manipulate the market, the details of which can be viewed here. The industry-average margins required are much higher than what was originally proposed, acting as a high deterrent to resorting to manipulation techniques.

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The bitcoin futures market is a new and exciting development in the world of cryptocurrency. It allows investors to bet on the future price of bitcoin, allowing them to make money even if they don’t own any bitcoin themselves. The market is still in its early stages, but it’s growing quickly – and there’s no telling what kinds of exciting developments it will bring in the future. So if you’re interested in investing in bitcoin and you want to be sure you’re getting the most accurate information, you should definitely check out the bitcoin futures market.

 

We ensure the safety of your crypto derivatives trades to the maximum at Delta Exchange. Interested in trading in Bitcoin futures, options, and other such crypto derivatives in India? Give our website a visit today to sign up and start trading!

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