Cryptocurrency

The futures market, bitcoin resembles the traditional finance

The situation generated by the coronavirus has exposed how the futures market of bitcoin and the traditional futures, of stock market indices, may have the same behaviors.The panic global related to the coronavirus has caused the collapse of markets all over the world during the last few days. And something interesting to analyze in this situation is the relationship between the panic, the settlement of forward contracts, and the fall of the futures markets and traditional cryptocurrencies.

Nervousness reigns in the stock market

The most recent example in the traditional futures occurred on the 15th of march, after the FED cut its interest rates. The FED slashed its interest rates to 0% to save the economy of the country, but this has caused nervousness among investors, which led to a major stock index to fall between 5% and 8%.After the announcement of the FED, CNCB published a tweet where we could see how the futures of the main stock indices us were posting losses of around 5%. By analyzing the graphs of the future of the main global indices, we can see that from the beginning of march the winding constant of the forward contracts has generated a considerable drop in the indexes, while the nervousness among investors grows.

In the last crop of interest made by the FED we could see that bitcoin was seen benefited. But on this occasion, bitcoin recorded similar movements to the financial markets traditional. And one of the reasons could be the enormous leverage that exists in futures contracts with bitcoin; which did not exist at the time of the cuts made by the FED earlier.

The leverage on the future of bitcoin

The leverage of the futures contracts could be one of the main reasons for the fall of bitcoin. The higher the leverage, the contract is most likely to be liquidated when a variation of 20% or 30% in the price occurs. This could appreciate in bitcoin when the 13 of march the price fell to USD 3.800.After I dropped the price, we were able to see how in the same day was done the settlement of $ 700 million in futures contracts only on Bitmex, home exchange derivatives. An event of this nature has the potential to create a lack of liquidity in the “trading spot”, which at the same time makes you keep breaking the brackets psychological handled by the market.In a situation of panic as that is right now, the markets tend to be very influenced by the news you put on state of alert investors. That is why it is of great interest to see how the futures market for bitcoin is reacting in the same way that the futures market of stock index.