Predicting the future direction of Bitcoin and other cryptocurrencies has often proved to be a fool’s errand. One explanation cited by some economists for this year’s collapse in digital currency prices also suggests that a major Bitcoin rally may not return for a while. An article written by noted Japanese economist Yukio Noguchi last week has been circulating among Bitcoin enthusiasts. In it, Noguchi argues that the turning point in the Bitcoin rally coincided with the introduction of a Bitcoin futures market in the United States.
On Dec. 10, the Cboe Futures Exchange began trading Bitcoin futures. Bitcoin prices peaked five days later. “Because it’s now possible to trade on bitcoin futures, you’ll never see a rapid surge again,” Noguchi wrote in the Japanese periodical Diamond Weekly. Noguchi’s argument echoes one made in May by economists at the Federal Reserve Bank in San Francisco in a paper titled, “How Futures Trading Changed Bitcoin Prices.”
“The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence,” the Federal Reserve paper said. “Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.” Bitcoin has lost two thirds of its value since mid-December, following a huge rally that brought its price close to $20,000. Despite the decline, Bitcoin is still worth more than 10 times what was only two years ago. People who have made fortunes on Wall Street or spent their careers studying investing have tended to be skeptical of Bitcoin. Billionaire Warren Buffett scorned it as “rat poison squared.” J.P. Morgan CEO Jamie Dimon advised Bitcoin investors to “just beware.” Economist Nouriel Roubini called it the “biggest bubble in human history.”