Bitcoin Has Lost it’s Mojo and Bitcoin Futures are to Blame

It’s been a choppy 24-hours for Bitcoin. Perhaps not as volatile as the swings seen in December, but choppy nonetheless, leaving the currency with little direction.

Through the first day of the year, Bitcoin failed to break through to $14,000 and actually ended the day in the red, with Bitcoin futures prices providing little support to Bitcoin and investor hopes of a New Year bounce, which investors were likely to be looking for with the news wires in holiday mode.

Through the early part of this morning, things have not been much better, with Bitcoin up just 0.5% to $13,510.43. Bitcoin had it an intraday high of $13,918.01 at the very start of the day, but quickly pared its gains in what is looking to be a pivotal period for Bitcoin and perhaps some of the other cryptocurrencies that have struggled going into the New Year.

As is always the case, once an investment goes mainstream, as is the case with Bitcoin, expectations are that behaviour will adjust accordingly and, with the introduction of Bitcoin futures, things just haven’t quite been the same for Bitcoin.

If investors were looking for some guidance on which way Bitcoin was going to go at the start of the year, the pricing of the futures contracts for January and February expiry have certainly not been bullish and any hopes of a rally to new record highs have been muffled, in spite of some suggesting that Bitcoin could hit between $40,000 and $60,000 by the end of the year.

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At the time of writing, the Cboe’s Bitcoin futures contract for January was down $1,050 to $13,500, recovering from an intraday low $13,060, with the February contract seeing a heavier decline of $1,150 to $13,450.

Investors will be all too aware of how influential the futures markets have been on other asset classes historically, so while Bitcoin futures may be new, the concept is tried and tested.

With Bitcoin’s price at the time of writing above both January and February contracts, upside for Bitcoin is going to be limited at best and is certainly holding back any $1,000 moves in a matter of hours that investors saw through the latter part of 2017.

The smart money is suggesting that there are some concerns over current levels, particularly when factoring in a number of key risks drivers that are presently negative for Bitcoin.

Amongst the key risk drivers is regulatory risk and the possibility of the South Korean government shutting down cryptocurrency exchanges. This has certainly been an influence at the turn of the year. Until there is greater clarity on the intentions of the South Korean government, the futures market is unlikely to begin getting too bullish anytime soon.

Transaction speeds and backlogs is another fundamental issue that questions whether Bitcoin can ever become truly mainstream. On each occasion that sizeable backlogs have been reported, Bitcoin has taken a hit and such an event could occur at any moment, which is never a good thing for the smart money.

The good news is that there’s been no collapse, the bad news is that some of Bitcoin’s peers are performing well in spite of the risks, with Ethereum up 11.34% and Litecoin up 7.97% at the time of writing.

There’s no doubt that the year ahead is going to be a defining one for the cyptomarkets and there’s just cause for investors to continue to tread carefully at this point in time.

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