In a report, Lee explained that the “gut wrenching” weakness in Bitcoin (BTC), which dropped upwards of 20 percent earlier this week, was the result of futures contracts expiring. Lee said the “significant volatility” is one of six expirations of Bitcoin that have happened since CBOE launched its futures contracts in December 2017. Lee wrote:
“Bitcoin sees dramatic price changes around CBOE futures expirations… We compiled some of the data and this indeed seems to be true.”
According to Lee, Bitcoin usually sees a drop of around 18 percent in 10 days before futures expiration, with prices generally recovering by six days afterward. Lee explained that if a trader is long on Bitcoin and short the futures, holders may sell large shares of BTC at the volume weighted average price as contracts move closer to expiring.
Near expiration however, they may sell the remaining Bitcoin, which causes the price to drop, and leaving the short position in the futures they close “with a handsome profit.” […]