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A Deeper Look At Futures Impact On Assets

I was looking at the $YFI chart this morning and I couldn’t help but think it looked similar to the bitcoin 2017 chart. Back on Dec 21st 2017 the first BTC future vehicle was launched and the 2nd shortly after that. I remember it like it was yesterday, everyone thought that price was gonna rally and go nuts, when what none of us noobs realized was that futures seem to be the kiss of death especially for risk assets.

I should note that it seems that a CBOE/CME futures listing seems to be way more toxic to price discovery then say a Binance inverse futures launch or FTX.

There are still a lot of people who don’t realize how futures work and what they allow. In short they are a paper version of the underlying asset, its a form of fractional reserving that asset or stretching out the supply but also can serve as a huge manipulation mechanism as we have seen with gold and silver.

In fact funny enough today is the day that JP Morgan paid up $920.2 million in their spoofing settlement case with the CFTC and SEC. Of course they are viewing this as a huge win as its the largest case ever it pails in comparison to the money JP Morgan has made over the last 15 years of manipulating the metals markets.

In case you are wondering if this means JP Morgan is gonna stop, the answer is no.

Lets get into some charts and show off some of the more obvious examples of how futures listings can not only kill price discovery almost instantly but how it acts to suppress price for long periods of time.

Here is the OG, silver. Silver futures launched on the CME July 5th 1933 which is the very left of the chart below, silver stayed flat until 1967 as you can see from the interactive chart here. That is price suppression of 34 years!

Don’t worry we will cover gold in a minute, after I cover a few more obvious examples.

Bitcoin is a great example of futures being introduced in the middle of a rally and almost instantly kills the rally.

The black vertical dotted line is the week that CME futures were launched

Next we have another great example a newer risk asset, $YFI or Yearn Finance, which like bitcoin was listed on many exchanges and then got hit from many angles just like bitcoin which took the steam out of the price discovery.

First futures to open for $YFI (I think) was on Binance Aug 30th (which is where the chart above is from, hence start date on Aug 30th) and probably a few others Asian exchanges that I didn’t know about. Then Sept 10th, Coinbase announced that trading would open for $YFI on Coinbase Pro Septh 15th. Price rallied to $43,922 on the 12th, on Sept 20th FTX opened futures on $YFI.

In the case of $YFI and a lot of these newer risk assets I don’t think this is being done on purpose per se but the mass listings and new instrument listings are all coincidentally lining up with price decline.

Here is a $CREAM chart from FTX, from start of perp listing till today

Here is $SNX futs on Binance from listing till today.

I could go on and on with these, just cruise through Binance futures site or FTX, even though its worth noting that its not a guarantee that futures kills price that isn’t my point. What I know for sure is that if its an asset in price discovery it seems to kill momentum 100% of the time as it allows participants to short the asset.

Gold is a great example of an asset that didn’t immediately dump and in fact price discovery continued for 2 more years until finally a second futures launch slowed it down.

The first futures contract on the CME was launched in 1972 just one year after the Bretton Woods model of monetary policy was removed from the US. Price actually continued to rally as people feared it wasn’t going to last and the dollar would then collapse, up until 1974 when the COMEX gold futures was launched. Then there was just a 2 year pullback before price continued to push up again.

As I have stated these aren’t set in stone but they seem to be big moments for the assets they touch and in the case of cryptocurrencies often times the kiss of death (next to a coinbase listing anyway).

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