This doesn't matter. The HFT arbitrage guys (if they haven't already) will move in to bring the other components of the fragmented market inline. This is just a natural progression with markets becoming more efficient.
I think these futures will do a few things for bitcoin.
- allow an explosion of ETF's, including levered ones, to begin trading. With futures you can now hedge out your bets so it should, at least in theory, be easier to find a counter party to write you a swap against bitcoin volatility. It also lays the ground work for the SEC to see a functioning market for these products which they ahve said is a prerequisite to allow bitcoin ETF's to trade.
- give some rules around what's considered a fork and what should be ignored in the bitcoin world. Each of these products will provide some "adult" guidance to other markets as to which alt coins, forks, etc should be considered vs ignored.
From an implementation perspective there are two differences I see between the COBE and CME implementations.
1) The CBOE’s contract size will be based on a single bitcoin, while the CME’s contract size will be based on five bitcoins, a current notional value of more than $50,000.
2) The CBOE’s contracts will be cleared by Options Clearing Corp. while CME will clear its own futures. The CME has estimated that initial margin on the contracts — or the amount of collateral set aside relative to the value of a trade — may be as high as 30 percent, an unusually high amount.
30% is far too small of an initial margin for such a volatile commodity.
The initial margin is expected to cover a the movement of an observable through making the margin call, the period of time the margin call could be filled, declaring the counter-party in default and closing out the position. This normally adds up to a minimum of 2 working days.
Saying that it's beyond the realms of possibility for bitcoin to jump or fall 30% in 2 days seems ridiculous.
This could be the largest one in absolute value: according to http://www.xe.com/en/currencycharts/?from=XBT&to=USD&view=1W it went from 11258 USD on November 28 to 9136 on November 29. Then it went up and down again to 9217 on the night of November 30.
The highest daily volatility ever was 15% and it's currently around 4%, according to https://bitvol.info/ . Two times the highest daily standard deviation ever doesn't seem so unreasonable.
That's the highest AVERAGE ROLLING 30 DAY volatility.
For example, on Dec 7, 2013, volatility between the high and the low was 54.6%. [1] However, it was lower for the other days of all 30 day periods that include that day, and averaged out to under 15%.
They also permit borrowing. If I borrow U.S. dollars from you and then disappear, a court can drain the funds (if they’re there) from my accounts. That wasn’t possible with cash. The capability enabled an explosion in credit and financial creativity.
Bitcoin, natively, is like cash. Borrowing and rates are afterthoughts. Futures fix that.
There is a certain hilarity in the multiple layers of hypocrisy here. A bankless Bitcoin coöpted by the banks. Investors wanting Bitcoin washed of its principles. Wall Street establishing itself as a gatekeeper to cheers from its detractors. Nevertheless, a lot of money is to be made.
Principles of any kind tend to go out the window pretty fast when large sums of money are on the table. Those who cling to principles get sidelined by pragmatic hustlers.
> Those who cling to principles get sidelined by pragmatic hustlers
I'm not judging said investors. As Matt Levine said, "'the need for a bitcoin ETF,' I once wrote, and it is just as true of a bitcoin future, 'is an argument against buying it'" [1]. Though, at this point, Wall Street is simply thrilled they've been given a magic number around which to design securities and for which any faults can be safely blamed on Silicon Valley.
Unless the volatility were to go down in the extreme, nobody has any business borrowing or lending in bitcoin. I'm sorry but it's absurd, unless done as speculation.
Basically, borrow bitcoin and you are in a short BTC speculative trade, lend it and you are long the same. If you'd borrowed $100 worth of bitcoin last year, you'd owe what, $1,000 this year? It's not a loan, it's a bet. And how do futures fix this?
Rates? Even mentioning rates on a BTC "loan" sounds entirely out of place.
OK but money isn't just about credit. It has two other functions: store of value and means of exchange.
As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
I thought it might be interesting as a means of exchange, and maybe it is in certain situations, but commissions seem too high for use as a major global digital payment system. You pay out of your currency to BTC, then from BTC to the target currency, plus the transaction fees which can be prohibitive unless you're moving some serious loot. I make a lot of small international payments and would love a great solution, but I can't see bitcoin as it. Who actually uses BTC? I mean, other than speculators? ("Investor" is a euphemism here, buyers of bitcoin are commodity or currency speculators.)
Over long time periods, you're right that lending and borrowing don't make sense. People borrow bitcoin over very short time periods to do leveraged trades.
> As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
If it ends up being an accepted store of value, this property will change over time. It'll look more like gold. Most people wouldn't' consider 'SPY' (SP 500 index shares) a store of value, but this is essentially how people are using them. You save money, and store it somewhere that will best preserve that value. Given the rate of asset price inflation, as well as increases in costs like medicine, you need to earn a return just to store the value.
The bitcoin price volatility you're seeing now is an adoption curve ramping up. Of course there are huge rewards for early adopters.
All it takes is enough people believing that this store of value works, acting on the belief, and that belief becomes real. Financial markets are formalized mechanism to control what is really like magic; beliefs that become real when sufficient people believe them.
There is the risk that people stops believing and the magic vanishes. The accepted store of value may not be so valuable in the end, like baseball cards in the 80’s or beanie babies in the 90’s.
While I believe other coins will inevitably be better suited for handling transactions than bitcoin, bitcoin may end up being the best store of value due to the amount of liquidity it has. Because of this bitcoin tends to act as the gateway to alternative currencies/tokens. It seems like a weird self-fulfilling prophecy.
I predict even when a better chain comes along than bitcoin, bitcoin will still enjoy the benefit of being the gateway to and from traditional funds. Demand for alts will create demand for bitcoin which I think we already see.
Yeah, it's the one that I'd personally want to use BTC for. I still might use it instead of a wire transfer, and in this case, I can see some use for futures as a hedging device, because even staying in bitcoin for one day or one hour seems like unnecessary risk when you're trying to get work done, and not make bets. This again ups the costs in terms of money and time, leading me to prefer, when possible, services like TransferWise.
It's not hypocrisy, just evidence that the bitcoin community isn't homogeneous. There's always been a set of people who viewed it as a radical political project to unseat central banks and democratize money, but I'm not sure those people were ever predominant, and they certainly aren't predominant now.
It's not the the libertarian segment of the community has done a 180 to cheer Wall St's cooption of bitcoin. Instead, you're witnessing a lot of people who hold bitcoin who are excited that more and more people appear to regard it as a serious store of value. These people are probably not libertarian types--they're interested in bitcoin as an investment, and don't really care if the additional money entering the ecosystem comes from Wall St.
I feel like I must have a misconception about bitcoin. Coins are earned by calculating hashes for transactions. As the amount of coins grow the difficulty of calculating hashes increases. This limits the creation of new coins, which increases the scarcity of coins and thus their value. This keeps the incentive to mine at a more or less steady level, thus sustaining the network.
But.. Why spend something that is guaranteed to become more valuable? If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could. Doesn’t this completely undercut the idea of bitcoin as currency?
>Why spend something that is guaranteed to become more valuable?
Nothing is guaranteed to become more valuable! In the US we’ve had a depression and even a recent recession to help teach us this. Guess it didn’t take.
Past performance is not directly related to future performance. Yes, buying BC 5 years ago was a good bet, that says nothing about buying them today and selling them in 5 years or even 5 days.
The difficulty increases or decreases proportional to the effort expended, so that new coins are minted every 10 minutes. The 21 million coin limit is hardcoded. To your question about spending deflationary money, one theory is that people may buy more high quality, necessary goods than cheap crap.
Yes, which is why it hasn't had any significant usage as a currency. People are just calling it 'digital gold', now.
It's also not correct that bitcoins are scarce. They're only scarce as long as there's a social agreement that 'bitcoins' are the one true cryptocurrency. It's trivial to create new cryptocurrencies or even fork the main bitcoin blockchain. That could turn on a dime and wipe out all of bitcoins value, if some new cryptocurrency comes along and everyone switches to it.
You seem to be deliberately conflating the terms “Bitcoin” and “cryptocurrency,” when you clearly understand that the former is a special case of the latter.
"Bitcoin" isn't the software, or the network, or the database. It is the consensus of every player in the ecosystem: users, miners, developers, exchanges, etc. A fork doesn't fork the consensus, its by definition a deviation from consensus. Forks don't duplicate what is valuable about bitcoin.
Because there are true believers who think it will overtake bitcoin in the end. It's perceived value is derived in opposition to bitcoin, rather than duplicating bitcoin's value.
Nevertheless, there are now two competing bitcoin chains, a doubling in the number of bitcoins. And I imagine there will be more and more in the future.
Yes this is one of the problems that bitcoin has to overcome if it ever wants to be something more than an investment currency. You are not the first who notices this problem, see e.g. https://en.bitcoin.it/wiki/Deflationary_spiral
It won't. Bitcoin is a fad. It will run out of fools and when it does there wont be a way out.
Let me illustrate it on a very simple scale. There are four participants in a market. Each one starts with 100 coins and $100 USD. Each coin is valued at a dollar. Minimum units are 1 coin and 1 dollar. What is the maximum market value?
The correct answer comes from a single pre-final stage:
One person has 400 coins another person has 400 USD and the other two people have nothing. At this point the person with 400 USD pays $400 USD for 1 coin giving all 400 coins value of $400 each i.e. $160,000, except there are no $160,000 in this market.
It does not. We have defined a totality of the market. Since it does not fit crypto-nutcases view of the world, they come up with the slogans: QE! Fiat! Inflation!
Do you at least accept that in the market described above coin value is fictitious as soon as totality of the market is value for coins is higher than $400?
[late edit]: Do note that it is not to mean that there's no money to be made before the collapse - there are tons of fools who are willing to part with it. That's why financial firms are starting to salivate looking at it.
Try switching the labels "USD" and "BTC" and try to work out where your argument breaks down.
When one person buys 1 USD for 400 BTC, that means the 400 USD is worth 160,000 BTC, but where are all the BTCs?
If that's not a good argument against the US dollar's viability as a currency (and it's not!) then your version is also not a good argument against Bitcoin's viability as a currency.
There are no goods and services inside your model.
There are only 2 currencies. Your assertion that the exchange rate is bogus because it is possible to buy 1 BTC for $400 applies just as well in the opposite direction.
I am, however, yet to see a single article talking about USD being quoted in bitcoin. Just like I do not see any articles of USD being quoted in Samsung TVs. I do see bitcoin being quoted in USD. I see USD being quoted in Euros and I see Euros being quoted in USD.
That's why Sansung TVs and BTCs are not currency while USD and Euros are. So BTC is asset. Assets in an non-liquid markets are prone to enormous bubbles.
Far too simple of an analogy. First there is competition between miners so there's never going to be a single source, plus there are millions mined already in the pool. Also, bitcoins are currently divisible to 8 decimal places but that can be changed as soon as it's needed.
It's quite possible in 20 years that 0.000000000001 of a bitcoin will make the average house payment and by then, we'll have friendly names for all the decimal places.
This entire thing is based around the premise that BTC is freely exchangeable for real currency. The amount currently exchanged is microscopic compared to the market value of BTC.
No, it isn't.. and I sincerely hope you're joking.
You should do the math on that and figure out what the value of a single bitcoin would have to be to make it come true. If that doesn't wake you up to how ridiculous that claim is, I don't know what to tell you.
I'll even go incredibly easy on you and let you assume the average mortgage payment is only $100.
Hint: it's a number larger than the US GDP
It's somewhat terrifying to me that I even have to argue this with someone.
OK, I didn't do the math. Thanks for the correction :). Turns out - lets ignore your generosity there, that we are realistically talking around 1000 trillion. National debt is at like 14 trillion. Chinese M1 money stock is 7 trillion. Now at the current growth rate, which is unreasonable to continually sustain, could continue to be high for a while, and you can't ignore the incredible growth of the global narrow money stock - https://data.oecd.org/money/narrow-money-m1.htm#indicator-ch... (10x in 15 years - 62x for Turkey in 20 years!). So I'll agree with you, highly, highly unlikely - but not at all beyond the realms of possibility - given what appears to be highly improbable (yet predictable history).
This is an oversimplification. You need to add goods and services to your hypothetical situation for it to make sense.
Say there is one hotel room and the alternative is sleeping on a park bench. The cost of the hotel room is 1 BTC. The price of Bitcoin is peggged to the perceived value of the room by the market.
The reason why currently the price of BTC is rising without goods being traded is speculation by investors that this will be possible in the future.
This is the equivalent that it costs $10 a night to stay in the hotel room but in 2 days time it will cost 1 BTC. If BTC is trading at $5 USD then it will be a good deal to buy BTC today as long as I have enough money that I’m not homeless in the interim.
the question is not how scarce Bitcoin is
the question is how abundant are fools
2. Your example is flawed, Bitcoin isn't an isolated ecosystem, it parasitizing on a global economy. HODLers even use USD as a Unit-of-Account, when bragging about paper gains.
In your example you start with 4 players each having $100, but IRL there are many more players with many more dollars who can and will join this game and 4 original players will eventually willingly or unwillingly exploit them.
It's like Israeli Kibbutzim[1] had a members-only Communist-like system, by exploiting outside employees and living on government subsidies.
Most kibbutzim are not self-sufficient and have to employ non-kibbutz members as farm workers (or later factory workers).
The problem with your example is that there is no demand, so there's no reason for anyone to buy any bitcoin at any price and so no expectation that you could sell your 400 bitcoin for $160,000. The driver of speculative value for bitcoin is future demand, i.e. what the demand is expected to be down the line. This is partly driven by speculation/greater fools right now. But its also partly the potential of Bitcoin to be a global currency.
There's a chance that a shared public ledger will overtake Visa/Paypal. It is million times higher than a chance of BTC overtaking either, and it is a bad bet.
Now add on a system where there are years where people buy Bitcoin in dense, multi-output exchange transactions, and they suddenly all have to transfer their coins to the exchanges using inefficient 1-output transactions.
The pool has been filling with a hose and now suddenly must be drained with a straw.
Then add on a system where sudden price drops instantly lower the transaction throughput (hashrate, while difficulty takes days to adjust). The straw gets kinked.
We got a window into this nightmare on nov 13, that was enough for me.
> As the amount of coins grow the difficulty of calculating hashes increases.
This is wrong. As the amount of coins grow, the amount of coins generated per block decreases (it halves every
~4 years). The difficulty is completely unrelated to the amount of coins in existence and is instead derived from the hashrate: as hashrate increases, difficulty increases, to target a block rate of 1 per 10 minutes.
> Doesn’t this completely undercut the idea of bitcoin as currency?
I don't think so. Right now people can buy bitcoin which is "guaranteed to become more valuable", and yet they still choose to buy things other than bitcoin with their USD.
Why would it be different if their base currency was BTC instead of USD?
Even if you don't think bitcoin is "guaranteed to become more valuable", there are plenty of things that are close approximations to that (pick any good investment), and yet people still choose to buy things other than investments. How do you explain that? Whatever reasoning you use to explain that can be applied verbatim to explain why people will buy things with BTC instead of just holding it.
You're confusing investment use with currency use. Currencies need approximately stable values to be useful as mediums of exchange. Inflation and deflation can both wreck currencies. Investments, in contrast need to have generally increasing values to be useful as investments.
Bitcoin started as currency, but its enormously deflationary record has turned it into an investment.
You didn't address my argument. If bitcoin being deflationary would truly prevent people from buying things, then why doesn't it do so already? You can already buy bitcoin instead of anything else you want to buy, so why do people buy things other than bitcoin?
If you can explain why people might want other things more than they want bitcoin, you can explain why the existence of bitcoin won't prevent people from buying those things. And whether they already hold bitcoin or not is totally irrelevant.
You also haven't addressed my argument. It doesn't matter whether you call it a currency or investment.
There are already things you can buy that are likely to go up in value over time, relative to the US dollar (e.g. stock market index funds). If the existence of those investments (that people can buy instead of other things) doesn't stop people from buying other things, why would a deflationary bitcoin stop people from buying other things?
people don't buy things by paying for them with US stock index funds. They pay for them with the cash portion of their portfolio. I mean sure, at some point they convert parts of their stock portfolio to cash. the reason it matters whether it is currency or an investment is, if it is an investment, then it should be valued on principles we use for valuing other investments.
The only reason to hold off on purchases because you think your bitcoin will go up in value is because you think your bitcoin will go up in value.
But that applies just as well even if you don't already own the bitcoin (you could just buy bitcoin instead of the other thing). Why does anyone buy anything that's not bitcoin? Because they want those things more than they want bitcoin. That doesn't stop being true just because you can pay for things in bitcoin.
Identical reasoning applies if you replace "bitcoin" with anything else that you think is going to go up in value over time. And people still buy things. The sky isn't going to fall down!
It's not symmetric though. If I sell bitcoin to buy toothpaste, I will need to pay taxes and transaction costs, so I will probably just use cash to buy toothpaste, not bitcoin.
It does, nobody actually uses bitcoin to buy things. The only people making money from bitcoin are exchanges and the speculators on the winning side of bets.
No it's not. I'm happy to buy things with my fiat currency because it's not increasing in value at astonishing rates. I'll just keep my bitcoins and cash out some when I want to buy stuff.
I don't think you actually have an argument. I think you are confused.
Bitcoin's deflationary nature makes it bad as a currency. The rapid price gains do indeed prevent people from using it to buy things. Here, noted investor and Bitcoin proponent Fred Wilson has said he's stopped using it for commerce: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is in contrast with cash, which people don't hold on to in the same way. Nobody goes out to dinner and says, "I'm only getting a appetizer because this $20 bill will be worth more next week."
The discussion is not about people randomly buying things higglety-pigglety. The specific point is "Doesn’t this completely undercut the idea of bitcoin as currency?" It does.
Currencies are well-studied economic entities. So are investments. They have different purposes, and people behave differently with respect to them. You can feign ignorance of the two all you like, but that does not erase the difference.
> Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
People in fact do that all the time. People spend less so they can invest more. They trade currency for an asset whose value they expect to appreciate. If that asset does indeed appreciate, they are far more likely to hold onto it than cash, especially if they expect to it to appreciate yet more.
I gave you a specific example of a prominent investor and Bitcoin advocate shifting from treating Bitcoin as a currency to treating it as an investment. Which you ignored, just like you're ignoring basics facts about finance.
The difference is semantic. You don't invest in a depreciating asset (USD). Despite this fact, you still do have and use depreciating assets - cars, inflationary currencies. It just so happens, that your preference is to get rid of bad money first (Gresham's law). When the bad money is gone, all you are left with is the next worst money/ wealth you have (money as in M0,M1 money stock etc.)
The difference is definitely not semantic when we are discussing the utility of a technology for a given use case.
It's like saying all computers are basically the same -- which they are -- and then going on to conclude desktops and smartphones and rack-mounted servers are all interchangeable.
Bitcoin may be a great investment asset. Time will tell. But its deflationary nature and its high volatility make it a bad currency. That's in obvious contrast to the original intention, which was a "purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
Deflation is bad for a currency because it means the currency will be worth more later. People hold on to things that they think will be more later. Currency, though, should be something people are comfortable spending.
This is especially a problem when a currency is used by a lot of people. It discourages economic activity and increases the value of debt. Imagine, for example, that you had taken out a Bitcoin-denominated car loan on Jan 1 2016 with a monthly payment of 1 BTC. That's about $440 at the time, or 15 hours at the median US wage. Now you'd have to work 40x as much to cover the loan payment, or about 20 hours a day just for your car. Meaning you would have been driven into bankruptcy.
Luckily for its users, Bitcoin never really took off as a currency, so their debts are in much more stable national currencies. But as you see with Fred Wilson, many experience sharp regret for the times they did use it as a currency.
That's not quite how it works. The difficulty of calculating hashes is dynamic -- a function of the global hashing power -- to ensure that, on average, each block takes 10 minutes to mine. The miners are rewarded for mining a block from the mining fees paid in each transaction (which can be zero, but it's then very unlikely that your transaction will be picked up) and a reward. This reward started at 50 BTC per block and halves approximately every four years (it's currently 12.5 BTC per block): this is where new bitcoins are created. This series of halvings eventually converges to a sum of 21 million BTC available.
One miner is (currently) rewarded with 12.5BTC when they mine a block before any of the other miners; minus the expense of the energy used in mining that block plus all the other blocks which they were unsuccessful in mining before everyone else (i.e., wasted effort). Hence the race for more efficient hashing hardware, to be the one who wins that reward before anyone else, without it costing them more than what they invested.
«If I had something that I knew would become more valuable...»
Because neither you nor anyone is certain Bitcoin will become more valuable. If you knew, you would put all your life savings into Bitcoin this very minute.
That's the reason I personally have been spending bitcoins for 7 years, and will continue spending them. For all I know BTC might crash tomorrow and never recover.
>Why spend something that is guaranteed to become more valuable?
Yes, and this is a concern for many. Bitcoin might not be the winner for reasons like this, but it is a leader and currently is the winner. There are a lot of people now thinking about these problems and even in some cases, how to add things like inflation to Bitcoin so that people do start spending it more than hoarding it
So people are aware of it, it is just too early in a lot of ways to tell what is going to happen.
Personally, it wouldn't surprise me if Bitcoin is like Mosasic and eventually we are using Firefox, Chrome, etc equivalents of cryptocurrency years from now.
> If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could.
I also save my USD “as long as I possibly can,” by which I mean “until I value something more than the USD it costs to acquire.” In practice, that very frequently ends up being relatively small purchases of things I literally need to survive and function in society, like food, rent, and clothing, but beyond that I try to save as much USD as I can despite it being nearly guaranteed to decrease in value over time.
Cash or cash equivalents (savings, CD, etc) if your main goal is to finance a home. One measure of "can I afford this home" is, did you earn your money from regular work and savings or one two years of extraordinary stock market gains.
Keeping savings simple at times is prudent. I have a feeling a lot people are going to be mostly in cash in the next 18 months...
That frequency is small because the central bank targets an inflation rate of about 1-2% (and does so by pumping currency into the market, more or less). This does two things: makes it not worth it to save your money, and makes it not worth it to invest it it anything with less than a -1% yield (unless it is a good or service of some kind).
So you’ve not answered the questions of “why would I spend this currency on _anything_, including other investments, if holding onto it is the best investment out there?” And how does bitcoin not consistently stay in a deflationary spiral?
> why would I spend this currency on _anything_, including other investments, if holding onto it is the best investment out there?
Different people value different things differently, thus there is no universal agreement on what the “best investment” is. Remember that the price of Bitcoin cannot change without both a seller and a buyer. Each bitcoin bought is a bitcoin sold. The most obvious and simplistic example of a reason people might sell Bitcoins right now is that they are hungry and want food, but that generalizes to more complex differences between individuals’ time discount functions.
> Why spend something that is guaranteed to become more valuable? If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could.
Why buy a computer/phone/car that is guaranteed to become cheaper next year, or obsolete within 2. If I were given the opportunity to purchase something that systematically becomes LESS expensive, I'd hold off on the purchase as long as I possibly could.
Presumably if a real money system (like dollars for most of the 19th century) were deflationary, people could still use those dollars, and whoa. They did use those dollars.
That's one of the problems with deflationary currencies - people are less willing to spend them since they are essentially an investment, making them more volatile. Governments target 1-2% inflation for valid reasons.
What you are talking about is the speculative value. There is also a utility value for a pseudonymous currency that is difficult to block and nearly impossible to reverse for things like drug sales or laundering money. One big risk with bitcoin is that another cryptocurrency could come along that has lower fees(because of block size or different proof of work system), faster block times for more reliable transactions, more anonymity in practice, or a more useful secondary network.
> Why spend something that is guaranteed to become more valuable
At some point the expected increase in value will be on par with the utility value derived from making the transaction with the bitcoin you already have.
A common misconception is that while Bitcoin may be deflationary in that the rate of supply creation is decreasing, it does not in any way guarantee the value of the coin. Inflation and deflation of currencies are also demand based. If demand for bitcoin falls faster than the decreased rate in which coins are issued, the value must go down.
As with most financial assets with high liquidity, there is no such thing as "guaranteed to become more valuable". If it were, it would already be at that price.
Will be interesting to see how closely these track BTC, both initially and in times of stress.
BTC is difficult to short so if/when there is a sharp decline in price you have to rely on people buying futures instead of BTC outright. I suspect this isn't going to happen so on price declines the futures will fall further than BTC, also leading to bigger crashes in BTC.
Maybe that is a good strategy, wait for some weakness and sell the out of it to see how far it crashes.
Could you say more about why you think the futures would crash further? My understanding is that these are cash settled, so this isn't like a normal commodities market where you actually have to deliver the underlying.
That's the interesting part we're going to find out.
Yes they're cash settled on the expiry date so on the 3rd Friday of the month the future that expires that date will have the same price as BTC.
When there is time to expiry though, what is the mechanism that keeps the prices aligned? If BTC is difficult to short natively, there isn't an easy way to keep the futures at fair price.
IE if BTC is worth 10k and someone keeps selling futures down to 9.5k, why would BTC drop? Only if a buyer chooses not to buy BTC but buys the future instead. But if the future keeps dropping those guys will get scared off.
The real thing is no one knows so we'll find out soon if/how this will work.
the cash settled futures market is more like you betting your neighbor $100 that the price of BTC will rise by a certain date. the futures exchange acts as the bookie and just exists to track the BTC price on the crypo exchanges and settle the futures contracts ( bets ).
But the bet is open to anyone and, as the parent said, if the future is much cheaper than the real thing the people who want to get exposure may use the future (removing demand from BTC) and if the future is much more expensive arbitrageurs will sell futures and buy BTC at the same time (adding demand).
I agree. The only thing that would work is for a whale to sell some of their bitcoin and buy the futures. I'm guessing whales will come out of hiding to make this arb.
Imagine the margin call you're going to get whenever the market swings wildly against your direction...
I assume that most interested parties will use these for hedging purposes, but there's bound to be a few poor souls out there waiting to use these for speculation.
Since these are cash settled futures, a large move up may have the unintended consequence of generating more selling pressure. If you're hedging a long BTC position with futures, you could run short of cash required to maintain the position. Thus, you would sell BTC to get USD. If this were a BTC settled contract, you would just hand over the BTC at delivery.
Since these are USD settled, futures might put a damper on the rate of increase.
Are CBOE and CME are providing liquidity (fulfilling buy/sell orders) or are they simply operating a pool where traders bring their own positions and act as a settlement platform between participants?
How can they grantee 'legality' of the coins being traded by those participants in the 2nd scenario? Let's say then the coins being traded in the 2nd scenario are identified by the IRS as 'bad coins' - will they freeze the coins held by that account until the legal dispute is settled?
How can you grantee the legality of coins in an option contract if the coins held by one party prior to the contract expiration are seized?
I'm very curious how they're going to handle these scenarios. Personally, I wouldn't trade on this.
These are all cash-settled futures. Suppose I buy and you sell a future marking Bitcoin at $10,000. The next day, Bitcoin is $11,000. You give me 1,000 U.S. dollars. (The exact mechanics depend on various factors. I’m stylising.) The next day, Bitcoin falls to $9,000. I give you 2,000 U.S. dollars. Et cetera until the contract is over.
Many investors want exposure to Bitcoin. A significant subset therof are perfectly happy with the financial system as is. They want Bitcoin to look like any other financial asset. These futures are the beginning of Wall Street serving that demand.
Disclaimer: This is not investment advice. Not all futures work like this. Review investments with a lawyer and/or investment advisor.
I can see that being the case in a market where it's difficult to transport a few tons of gold (if that's your position size) but suppose I want to take delivery of the coins. Will CBOE facilitate this?
This is not unprecedented. If you look at weather futures, for example, nobody's going to want to take delivery of a petagram of cool air. Or think about index futures: who wants to receive 1 share of 500 different stocks at settlement time? When the underlying commodity is hard to work with and people still want to gamble^W hedge their risk, cash settlement solves plenty of problems.
That makes sense here. People who need wheat or steel to run their business and want to lock in prices might buy futures. But approximately nobody actually has a business need to deliver 1,000 bitcoins in February. At best, they might want to hedge some sort of risk. But more likely, it's straight up speculation from people who don't care about Bitcoin as such, but just want to get in on the action.
The whole point is that actual coins are never involved, which is ironically why the futures are far superior instruments to actual bitcoin itself if you want bitcoin exposure.
Bitcoin is a currency right? Where is the Forex level leverages being offered? We need to speculate on bitcoin with 100:1 or 200:1 to really get this bubble expanding.
I had trouble understanding bitcoin myself, and therefore stayed away from it, but what made me understand it, if shinny metals and compressed carbons pieces have huge markets, eg. gold has a cap of 7 trillions and bitcoin is just 150 billions, and just work why bitcoin would not also work, even when you buy gold jewellery or diamonds, in the back of your mind is the resell value, (hedge against inflation), not that they look much better than a fake, or the coated version.
Maybe in US inflation isn't a problem but in my country until a few years 7% inflation was low, although maybe the official inflation is low, but as far as I know asset prices have gone up due to quantitative easing.
An important difference: gold and diamonds have significant non-financial use. The majority of gold mined each year, for example, goes to jewelry and industrial use. And the track record for that demand runs back millennia.
gold industrial use is like 10%, jewelry as just a fancier way to store gold, so 90% of gold is so valuable because is valuable, and for so many years, meaning something can be valuable without intrinsic value, aka bitcoin.
I disagree. Gold is valuable because physical commodities and physical things, like jewelry, etc. tend to track inflation over time. As an investment, gold is terrible. Just look at the chart of gold prices over a long period of time.
>Gold is valuable because physical commodities and physical things, like jewelry, etc. tend to track inflation over time.
I don't know how to read this other than as stating the same thing with different words, i.e. "tracking inflation" is just another way of saying that its valuable.
Well, what I mean is, physical things tend to track inflation. That doesn't make them great investments. I'm not sure it's fair to assume the same properties for bitcoin, but supposing bitcoin is like gold - gold is actually not a great investment.
Jewelry is definitely not just a fancier way to store gold. How many people do you know that sold their wedding rings when prices spiked?
I don't think intrinsic value is a meaningful term. Gold has been valued for millennia because it is very useful for making pretty things. And the price has been high for a long time because the supply of it is low.
You've got the causal relationship flipped. Gold isn't valuable because it's used in jewellery. It's used in jewellery because it's considered valuable.
There was a time when we hadn't the technology to produce aluminium in significant quantities like we do in today's factories, and it was more expensive than gold. And for that reason, it was used in jewellery, expensive cutlery and even the Washington monument.
Gold is mostly valuable for its scarcity and the way our culture has used scarce metals as a store of value, not because of its intrinsic value as a metal.
Today we can create artificial scarce tokens digitally, before using a centralised party to manage the ledger, today in a decentralised manner. Who knows whether gold's status will last, or in fact bitcoin's. Perhaps the noble notion of decentralisation won't be valued by markets in the end, perhaps there's no reason to respect one token's value for its scarcity when you can programmatically create a million clones on a single computer.
I've been a bitcoin enthusiast for half a decade, but the past few years I've seen a major decline in genuine interest in bitcoin other than as a get rich quick scheme. We used to have lots of cool and fun things going on, now it's bland and boring. People forget bitcoin's only value is its decentralised nature, yet the price increases don't reflect any significant growth in capturing the value of decentralisation, at all.
gold is also used in jewelry because jewelry made out of gold looks good, right? it's not pure scarcity, certain physical properties of it make it attractive, correct?
You can make something that looks identical with cheaper alternatives or even synthetic materials. Same with diamonds (see cubic zirconia).
Thus, it is not the actual properties that make them desirable as jewelry. It is solely the fact that they are valuable that people want them for jewelry.
hmm, perhaps, but historically you couldn't and so this combination of historical data, etc. as well as physical properties is what gives it value. But, yes, because of the issues you are talking about, going forward we should expect gold to be a bad investment, not a good investment.
I'm not sure you can say that gold is used in jewellery solely because it is valuable. Gold has physical properties being nonreactive and soft enough to be worked without large scale machinery that makes it a perfect material for making shiny jewellery out by a single skilled artisan. Add in an element of rarity/scarcity and it's pretty much a virtuous circle for why gold is used in jewellery.
If the price of gold was to collapse tomorrow, it's use in jewellery would continue without pause.
That may have been true a long time ago, but I highly doubt we'll be buying each other gold rings if they cost 50 cents in material like a plastic ring, or some shiny colored cheap metal ring, or any other easily malleable cheap and abundant material available today.
Price is a balance between supply and demand. Gold's price is high because there is a lot of demand for use in jewelry and industry. Its monetary value isn't some intrinsic or historical fluke. The monetary value is underwritten by its utility.
> People forget bitcoin's only value is its decentralised nature, yet the price increases don't reflect any significant growth
You seem to ignore the simple fact that as demand grows for a limited resource, the price grows. So even if the "value" of bitcoin viz a viz decentralization has remained constant, its market cap goes up because demand has exploded.
There are many valuable things that are not made into jewelry. There are metals that are more valuable than gold, but they are not as commonly used in jewelry because they aren't as aesthetically appealing. Gold was used for making beautiful things in cultures that did not treat it as money. It became valued because it was uniquely workable, beautiful, and durable.
Part of gold's value is its rarity, certainly. But another part of it is utility. If investor demand for gold collapsed, it would still be valued.
Gold isn't worth $1.2K per ounce because of its "non-financial use", and has been valued throughout human history for its scarcity. I'm fairly certain kings weren't making crowns from the stuff 500 years ago because of its conductive properties.
The rub is in "gold just works". It doesn't just work, there are reasons it has retained value for so long and reasons it might not forever.
The intrinsic value of USD is it's the only currency you can use to pay taxes to the US government. The intrinsic value of gold is its industrial/commercial uses. The intrinsic value of bitcoin is a nearly incorruptable transaction ledger while also being trust less.
None of these things "just work", some or all will fail eventually.
Gold in industrial applications will probably be used at atomic-scale in integrated manufacturing processes sometime within the next three years.
If you look at an ATX motherboard from 2009 with an Intel processor and a MacBook Pro mainboard from 2017, the amount of material consumption to create a similar product has fallen dramatically. You can actually see Moore's Law, it's kinda beautiful.
>The intrinsic value of USD is it's the only currency you can use to pay taxes to the US government.
This isn't intrinsic value. The government can conceivably decide USD is worthless (it won't, probably ever, unless the US collapses). USD relies on the US government for value.
Being able to burn money to start a fire would be intrinsic value. Same for gold's conductivity and its other industrial uses. They are physical properties.
I think its a stretch to say that the US gov will decide USD is worthless. So the expected intrinsic value is as he stated, the power of the US government to levy taxes. I would also include the domination of the USD in oil trade as another intrinsic value.
Intrinsic value is a term with specific meaning going back to the days of commodity money. I don't disagree with your point, but by definition the things you mention are not intrinsic value in the monetary theory sense.
From an economic standpoint, Bitcoin is backed by generated electricity, computer hardware, and network trust. This is not dissimilar from the American Dollar, currently backed by the global energy economy and network trust. Here, the network is the US Treasury and the American public, depending on your analysis; Bitcoin's network is necessarily smaller but the opening of Futures trading suggests a vested interest in continued network growth by exchange operators. Consider the hedge on continued access to electricity and advanced technologies.
What this is worth to the consumer (is currency a product? opinions vary) will vary, but diamonds without industrial use were valued at billions of dollars only 150 years ago. Large diamonds still carry multimillion dollar values, despite that a 32-karat diamond can be grown from carbon ash in a small plasma cell for only hundreds of dollars. Maybe even less if the laboratory is powered with a renewable energy source.
The diamond was perhaps my favorite currency to study. It is an object historically backed partially by human fascination with light, partially by industrial demand, but the industrial demand was slowly diminished by the introduction of synthetic grit and stones. Despite the low cost of manufacturing a synthetic diamond for jewelry, they usually depreciate immediately--that may be a comment on the consumer's demand by those who practice valuation, or it may be that a "used" diamond is somehow worth less than a "newly discovered or grown" diamond. Impossible to say.
Couldn't find a good source quickly, but it should be fairly evident that there is a pretty strong feedback loop between a nation's military and its economy, especially in the all of human history up to the colonial times at least. Maybe the link is more obfuscated today, but the US exerts a huge amount of political power (and therefore economic) with its massive military. And since military relies on the USD for funding, you could probably assume that the USD is going nowhere as long the US military is powerful (with some hand waving), which looks like a good bet.
>And since military relies on the USD for funding, you could probably assume that the USD is going nowhere as long the US military is powerful (with some hand waving), which looks like a good bet.
But that is not income and would only put the US in debt, devaluing the USD.
I think the point he was alluding to is that countries hold a significant chunk of their foreign reserves in USD, which keeps demand for USD high. Other than the obvious trade aspect, one of the major reasons countries do so is because they purchase goods and services from the US military. (e.g. Japan, South Korea).
> From an economic standpoint, Bitcoin is backed by generated electricity, computer hardware, and network trust.
Saying Bitcoin is "backed" by generated electricity and computer hardware is like saying paper money is "backed" by the printing presses and labor that made it. Economically this is nonsense.
Nonsense is perhaps a bit strong. What people mean when they say Bitcoin is "backed" by energy, is that there is a certain cost associated with producing one BTC. That cost is primary the electricity consumed and electricity has a spot price (barring distribution problems which might skew the price). Miners are not likely to sell under the price of production, at least for shorter time frames, which creates a supply elasticity.
It is not backed by energy in a literal sense of course, that would be obviously meaningless. But the price of energy, BTC and mining difficulty are connected. A change in one variable affects the others.
>From an economic standpoint, Bitcoin is backed by generated electricity, computer hardware, and network trust.
From an economic standpoint it isn't backed by anything. Bitcoin doesn't have a direct correspondence with any commodity. I can't turn in a bitcoin and get the electricity back.
It's back by nothing. Monopoly money. So is the USD dollar and all other fiat currency. Bitcoin is a fiat currency without the fiat.
The labor of manufacture is perhaps why the fiat currency has value. This argument heads toward philosophy, but without the minting process (and its technological backbone), to some degree the dollar would be valueless cotton.
In nations where the fiat currency is printed on polymer, I feel that their fiat currency states something like, "Not only do we stand as the people of this nation and its currency, but our belief is such that we have printed the currency with a specialized ink on an advanced polymer."
Before you consider military or government or the world outlook, a belief like that is not worth nothing. That note has indeed been backed by something, and no way is it Monopoly money!
I'm a fan of Bitcoin but here's the truth (source: me, I ran a public company): The real boon here is for new cryptocurrencies as opposed to Bitcoin as it will experience naked shorting resulting in artificial 'sell pressure' from large institutions and hedge funds due to these futures contracts.
In other words, you can take out a large short position without needing any fulfillment while at the same time it factors as 'shares short' against Bitcoin. 'Shares short' is a major component used by institutions to calculate or re-price to the downside and when these numbers are inflated that can result in inaccurate pricing for the benefit of the manipulator.
It's a high-level form of manipulation. This will also reduce Bitcoins volatility and opportunity for large gains in short periods of time.
Of course the reverse is true if institutions want to battle it out on the short and long side but meanwhile the banking divisions of investment banks (JPMorgan et al) remain scared to death of Bitcoin. Ultimately, Bitcoin will have to have more institutional allies and supporters than the worlds banks (banks hate Bitcoin, it makes them irrelevant in the near future) which is quite possible.
New cryptos with low floats (low circulating supply) won't be affected as much thereby offering larger gains in shorter periods of time which will attract more of the typical cryptocurrency day traders and traditional traders.
That's not how futures work. For every long futures contract there is also a short one, the net position is always zero. There are also no shares involved.
"The basic form of short selling is selling stock that you borrow from an owner and do not own yourself. In essence, you deliver the borrowed shares. Another form is to sell stock that you do not own and are not borrowing from someone. Here you owe the shorted shares to the buyer but "fail to deliver." This form is called naked short selling. These short sales are almost always done only by options market makers because they allegedly need to in order to maintain liquidity in the options markets. However, these options market makers are often the brokers or large hedge funds, who abuse the options market maker exemption. (For more, see How To Work Around A Market Maker's Tricks.)
Shorting Without Failing to Deliver
There is another form of short selling, which I describe as synthetic short selling. This involves selling calls and/or buying puts. Selling calls makes you have negative deltas (a negative stock equivalent position) and so does buying puts. Neither of these positions requires borrowing stock or "failing to deliver" stock.
A collar is nothing more than a simultaneous sale of an out-of-the- money call and a purchase of an out-of-the-money put with the same expiration date. Another way to short sell is to sell a single stock future, which is equivalent to naked short selling. No shares are borrowed, however, and no shares are failed to deliver..."
"... There are similar future transfers if you have sold calls or sold single stock futures. When you buy puts and fully pay for them, there are none of these money transfers after the purchase, although the value of your account certainly fluctuates as the value of the puts fluctuates.
All of the above ways to obtain negative deltas cause pressure on the value of the stock similar to how straight sales of long stock puts pressure on the price of the stock..."
Continued via the link above which is well worth the read. All things considered, we are ultimately talking about derivatives and derivatives of derivatives.
Good for you that you ran a public company, and you may well be right on the boon for altcoins bit, but please know you are incorrect in relating options and shorting to futures trading. Please try to seek first to understand and only then to be understood.
I don't think you understand how options/futures can be used to create artificial 'sell pressure' and in conjunction with the DTCC and CapitalIQ. You should research this.
I wonder how long before bitcoin gets banned by us gov completely (or at least conversion to/from usd by us banks).
It seems like this thing is ripe to create either some systemic financial crisis or help governments of countries that are not exactly allied with us interests (china, dprk etc).
Given that this article is about a regulated US exchange introducing trading for btc, I'd say chances of US outlawing it are slim. Possibly more regulation around it, but outright banning, not likely.
With every passing year, more and more financial products and services are being created around Bitcoin: futures, ETFs, swaps, and so on.
These products built on each other: the ability to hedge with futures will enable the creation of additional Bitcoin products and services, entangled with each other in complicated financial networks.
Regardless of what you think about it, Bitcoin is slowly but surely becoming a PERMANENT component of the world's financial infrastructure.
It's not difficult to imagine a future in which having some kind of Bitcoin exposure in a portfolio becomes conventional wisdom.
Not a bad reply. Sure I can pump some $ into it in the short but who's to say that capital injection wasn't the straw that made the black market assassin cash out and convert it into something has proven value, gold, etc.
Likely what's happened/happening is money is being sucked out of our economy into a shadier one. Silly American buys some bitcoin with their credit card a Russian who spun up a miner buys some gold with their credit card debt. Silly people see bitcoin goes up, think equity's been created there. It's debt.
That seems dangerous akin to ‘08. Crypto in general isn’t being used for much relative to its current hypothetical value.
It’s being propped up by a few huge investors. Once those investors have tripled their investment and grown bored speculating, they’ll move on, and there’ll be a run on crypto driving its value through the floor.
So any exposure through retirement accounts or other investment products seems really dangerous.
> Once those investors have tripled their investment and grown bored speculating
Can you point out to any example in history where an institutional investor has gotten out of investing because they have grown bored, and the profits they have are enough for them?
no but I imagine large funds change investments many times over their lifetime particularly in its riskier allocations.
funds are usually made up of larger contributors so while idk of an investor that’s grown bored there are plenty of examples of funds offloading investments for other financial products
I would be careful saying Bitcoin in particular is being cemented. There's nothing stopping its downfall from an "improved" cryptocurrency or other issues.
One thing this does is create preferential tax treatment for short term bitcoin trades. These are section 1256 contracts, so instant 60/40 tax split, vs 100% real income tax.
You'll see some institutions move away from the BTC/USD market for this reason.
- Unlike LedgerX, the futures will settle in cash, NOT in Bitcoin. So they won't directly create demand for more Bitcoin.
- In effect this is a "bookie pool" for institutions to place side-bets on bitcoin. Although there might be some consumer participation - I reached out to several CME brokers and at least two of them, NinjaTrader (US) and RBC (Canada), intend to provide the futures product to their retail investors (pending internal review).
- Biggest customers will probably be institutions who want to short (bet against) Bitcoin, and those who want to establish a long position (bet in favor of it) but are prevented from buying bitcoin directly (due to regulations, security / handling concerns, etc). You would think the CME trade throttling rules in particular would make buying the asset directly a more attractive option for those who want to go long and have access to other marketplaces (i.e. existing exchanges). For that reason, after the initial "rush" to get in, I think there's a risk the CBOE and CME markets will tend to attract more "shorters" than "longers".
- Naked shorts (placing short orders for assets you don't have and don't intend to buy) are an interesting aspect which I don't fully understand. I think the practice is illegal in US securities, although one of the exchanges from which the CME price index will be derived (Kraken) apparently already allows naked shorts (surprised that didn't catch the eye of regulators).
- A lot of the money in Bitcoin today is retail. Are those folks ideological, or easily spooked? (Probably a mix). What happens if folks start seeing red futures around the corner? Is there a risk the futures indices (with their more-disciplined institutional money) will start leading (rather than following) the Bitcoin price?
While I'm excited by this development (obviously a lot of great PR) I'm concerned there might be risk of it backfiring compared to the overly optimistic expectations I've been reading from existing Bitcoin holders. I really do hope it paves the way to ETF's (where you actually buy a basket of Bitcoin) - something I'd be a lot more excited for. In the meantime, here's hoping my cautious skepticism is unwarranted.
I was just saying this to someone. ~4% Control ~95% of all bitcoin. Could anyone explain to me how this is acceptable? Why buy a currency that is worthless without electricity and where the wealth is so unevenly distributed? I’m curious. To me that’s already two good reasons to stay away. Am I missing something?
it has recently come to my attention that Darknet vendors now prefer Monero over Bitcoin - it's more anonymous, and transactions are (currently) faster.
I don't know if that means anything long-term, but Darknet was the first place that had a lot of Bitcoin adoption.
It's currently very difficult to buy Monero with cash, typically you buy Bitcoin and exchange it for Monero on a secondary exchange.
I am wondering if anyone has been in contact with a brokerage that is going to list the Cboe futures when then 'go live' on Sunday. I haven't spoken with one that hasn't said 'we'll wait and see'.
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[ 3.2 ms ] story [ 186 ms ] threadOne thing this allows is shorting - unclear what it means wrt current price.
- allow an explosion of ETF's, including levered ones, to begin trading. With futures you can now hedge out your bets so it should, at least in theory, be easier to find a counter party to write you a swap against bitcoin volatility. It also lays the ground work for the SEC to see a functioning market for these products which they ahve said is a prerequisite to allow bitcoin ETF's to trade.
- give some rules around what's considered a fork and what should be ignored in the bitcoin world. Each of these products will provide some "adult" guidance to other markets as to which alt coins, forks, etc should be considered vs ignored.
From an implementation perspective there are two differences I see between the COBE and CME implementations.
1) The CBOE’s contract size will be based on a single bitcoin, while the CME’s contract size will be based on five bitcoins, a current notional value of more than $50,000.
2) The CBOE’s contracts will be cleared by Options Clearing Corp. while CME will clear its own futures. The CME has estimated that initial margin on the contracts — or the amount of collateral set aside relative to the value of a trade — may be as high as 30 percent, an unusually high amount.
The initial margin is expected to cover a the movement of an observable through making the margin call, the period of time the margin call could be filled, declaring the counter-party in default and closing out the position. This normally adds up to a minimum of 2 working days.
Saying that it's beyond the realms of possibility for bitcoin to jump or fall 30% in 2 days seems ridiculous.
For example, on Dec 7, 2013, volatility between the high and the low was 54.6%. [1] However, it was lower for the other days of all 30 day periods that include that day, and averaged out to under 15%.
1 - https://www.coindesk.com/price/
They also permit borrowing. If I borrow U.S. dollars from you and then disappear, a court can drain the funds (if they’re there) from my accounts. That wasn’t possible with cash. The capability enabled an explosion in credit and financial creativity.
Bitcoin, natively, is like cash. Borrowing and rates are afterthoughts. Futures fix that.
There is a certain hilarity in the multiple layers of hypocrisy here. A bankless Bitcoin coöpted by the banks. Investors wanting Bitcoin washed of its principles. Wall Street establishing itself as a gatekeeper to cheers from its detractors. Nevertheless, a lot of money is to be made.
I'm not judging said investors. As Matt Levine said, "'the need for a bitcoin ETF,' I once wrote, and it is just as true of a bitcoin future, 'is an argument against buying it'" [1]. Though, at this point, Wall Street is simply thrilled they've been given a magic number around which to design securities and for which any faults can be safely blamed on Silicon Valley.
[1] https://www.bloomberg.com/view/articles/2017-11-22/uber-hack...
Basically, borrow bitcoin and you are in a short BTC speculative trade, lend it and you are long the same. If you'd borrowed $100 worth of bitcoin last year, you'd owe what, $1,000 this year? It's not a loan, it's a bet. And how do futures fix this?
Rates? Even mentioning rates on a BTC "loan" sounds entirely out of place.
OK but money isn't just about credit. It has two other functions: store of value and means of exchange.
As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
I thought it might be interesting as a means of exchange, and maybe it is in certain situations, but commissions seem too high for use as a major global digital payment system. You pay out of your currency to BTC, then from BTC to the target currency, plus the transaction fees which can be prohibitive unless you're moving some serious loot. I make a lot of small international payments and would love a great solution, but I can't see bitcoin as it. Who actually uses BTC? I mean, other than speculators? ("Investor" is a euphemism here, buyers of bitcoin are commodity or currency speculators.)
> As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
If it ends up being an accepted store of value, this property will change over time. It'll look more like gold. Most people wouldn't' consider 'SPY' (SP 500 index shares) a store of value, but this is essentially how people are using them. You save money, and store it somewhere that will best preserve that value. Given the rate of asset price inflation, as well as increases in costs like medicine, you need to earn a return just to store the value.
The bitcoin price volatility you're seeing now is an adoption curve ramping up. Of course there are huge rewards for early adopters.
All it takes is enough people believing that this store of value works, acting on the belief, and that belief becomes real. Financial markets are formalized mechanism to control what is really like magic; beliefs that become real when sufficient people believe them.
I predict even when a better chain comes along than bitcoin, bitcoin will still enjoy the benefit of being the gateway to and from traditional funds. Demand for alts will create demand for bitcoin which I think we already see.
That's actually one of the biggest use-cases.
It's not the the libertarian segment of the community has done a 180 to cheer Wall St's cooption of bitcoin. Instead, you're witnessing a lot of people who hold bitcoin who are excited that more and more people appear to regard it as a serious store of value. These people are probably not libertarian types--they're interested in bitcoin as an investment, and don't really care if the additional money entering the ecosystem comes from Wall St.
But.. Why spend something that is guaranteed to become more valuable? If I had something in my pocket that I knew would become more valuable by systemic necessity, I’d save it as long as I possibly could. Doesn’t this completely undercut the idea of bitcoin as currency?
Nothing is guaranteed to become more valuable! In the US we’ve had a depression and even a recent recession to help teach us this. Guess it didn’t take.
If your expectation of bitcoin were that its value just doesnt decrease you have an incentive to turn your cash positions into bitcoin.
We could say people shouldnt have signficant cash reserves but reality shows otherwise.
It's also not correct that bitcoins are scarce. They're only scarce as long as there's a social agreement that 'bitcoins' are the one true cryptocurrency. It's trivial to create new cryptocurrencies or even fork the main bitcoin blockchain. That could turn on a dime and wipe out all of bitcoins value, if some new cryptocurrency comes along and everyone switches to it.
You need to eat, sleep and have fun though.
Let me illustrate it on a very simple scale. There are four participants in a market. Each one starts with 100 coins and $100 USD. Each coin is valued at a dollar. Minimum units are 1 coin and 1 dollar. What is the maximum market value?
The correct answer comes from a single pre-final stage:
One person has 400 coins another person has 400 USD and the other two people have nothing. At this point the person with 400 USD pays $400 USD for 1 coin giving all 400 coins value of $400 each i.e. $160,000, except there are no $160,000 in this market.
Bitcoin is a fad - it will be worthless. Shared public ledger is where the money is.
In your scenario, a third-party prints $159,600 USD. (aka inflation, government deficit/debt, quantitative easing...).
Time will tell who's right.
Do you at least accept that in the market described above coin value is fictitious as soon as totality of the market is value for coins is higher than $400?
[late edit]: Do note that it is not to mean that there's no money to be made before the collapse - there are tons of fools who are willing to part with it. That's why financial firms are starting to salivate looking at it.
When one person buys 1 USD for 400 BTC, that means the 400 USD is worth 160,000 BTC, but where are all the BTCs?
If that's not a good argument against the US dollar's viability as a currency (and it's not!) then your version is also not a good argument against Bitcoin's viability as a currency.
There are only 2 currencies. Your assertion that the exchange rate is bogus because it is possible to buy 1 BTC for $400 applies just as well in the opposite direction.
Was your $400 + 400 BTC model supposed to be an argument from first principles, or was it supposed to be a reference to some empirical evidence?
I don't think you're being as intellectually honest in this thread as you could be.
I am, however, yet to see a single article talking about USD being quoted in bitcoin. Just like I do not see any articles of USD being quoted in Samsung TVs. I do see bitcoin being quoted in USD. I see USD being quoted in Euros and I see Euros being quoted in USD.
That's why Sansung TVs and BTCs are not currency while USD and Euros are. So BTC is asset. Assets in an non-liquid markets are prone to enormous bubbles.
I'd suggest that discussing your point without the ad hominems makes for a stronger argument.
It's quite possible in 20 years that 0.000000000001 of a bitcoin will make the average house payment and by then, we'll have friendly names for all the decimal places.
Here's old school BTC:
https://en.wikipedia.org/wiki/Shell_money
No, it isn't.
You should do the math on that and figure out what the value of a single bitcoin would have to be to make it come true. If that doesn't wake you up to how ridiculous that claim is, I don't know what to tell you.
I'll even go incredibly easy on you and let you assume the average mortgage payment is only $100.
Hint: it's a number larger than the US GDP
It's somewhat terrifying to me that I even have to argue this with someone.
Say there is one hotel room and the alternative is sleeping on a park bench. The cost of the hotel room is 1 BTC. The price of Bitcoin is peggged to the perceived value of the room by the market.
The reason why currently the price of BTC is rising without goods being traded is speculation by investors that this will be possible in the future.
This is the equivalent that it costs $10 a night to stay in the hotel room but in 2 days time it will cost 1 BTC. If BTC is trading at $5 USD then it will be a good deal to buy BTC today as long as I have enough money that I’m not homeless in the interim.
It's like Israeli Kibbutzim[1] had a members-only Communist-like system, by exploiting outside employees and living on government subsidies.
Most kibbutzim are not self-sufficient and have to employ non-kibbutz members as farm workers (or later factory workers).
[1] https://en.wikipedia.org/wiki/Kibbutz
The pool has been filling with a hose and now suddenly must be drained with a straw.
Then add on a system where sudden price drops instantly lower the transaction throughput (hashrate, while difficulty takes days to adjust). The straw gets kinked.
We got a window into this nightmare on nov 13, that was enough for me.
This is wrong. As the amount of coins grow, the amount of coins generated per block decreases (it halves every ~4 years). The difficulty is completely unrelated to the amount of coins in existence and is instead derived from the hashrate: as hashrate increases, difficulty increases, to target a block rate of 1 per 10 minutes.
> Doesn’t this completely undercut the idea of bitcoin as currency?
I don't think so. Right now people can buy bitcoin which is "guaranteed to become more valuable", and yet they still choose to buy things other than bitcoin with their USD.
Why would it be different if their base currency was BTC instead of USD?
Even if you don't think bitcoin is "guaranteed to become more valuable", there are plenty of things that are close approximations to that (pick any good investment), and yet people still choose to buy things other than investments. How do you explain that? Whatever reasoning you use to explain that can be applied verbatim to explain why people will buy things with BTC instead of just holding it.
Bitcoin started as currency, but its enormously deflationary record has turned it into an investment.
If you can explain why people might want other things more than they want bitcoin, you can explain why the existence of bitcoin won't prevent people from buying those things. And whether they already hold bitcoin or not is totally irrelevant.
There are already things you can buy that are likely to go up in value over time, relative to the US dollar (e.g. stock market index funds). If the existence of those investments (that people can buy instead of other things) doesn't stop people from buying other things, why would a deflationary bitcoin stop people from buying other things?
But that applies just as well even if you don't already own the bitcoin (you could just buy bitcoin instead of the other thing). Why does anyone buy anything that's not bitcoin? Because they want those things more than they want bitcoin. That doesn't stop being true just because you can pay for things in bitcoin.
Identical reasoning applies if you replace "bitcoin" with anything else that you think is going to go up in value over time. And people still buy things. The sky isn't going to fall down!
You don't see that as a problem? Why buy things with BTC when it's better (for now) to just hold it?
It's the same thing: opportunity cost of not owning Bitcoin (or any other investment). Each person decides how confortable they are with the risk.
Bitcoin's deflationary nature makes it bad as a currency. The rapid price gains do indeed prevent people from using it to buy things. Here, noted investor and Bitcoin proponent Fred Wilson has said he's stopped using it for commerce: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is in contrast with cash, which people don't hold on to in the same way. Nobody goes out to dinner and says, "I'm only getting a appetizer because this $20 bill will be worth more next week."
Bitcoin already exists in the world. People can already buy bitcoin instead of other things, and yet people still buy other things. Why is that?
Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
Investments already exist and yet they don't stop people from spending on other things.
Currencies are well-studied economic entities. So are investments. They have different purposes, and people behave differently with respect to them. You can feign ignorance of the two all you like, but that does not erase the difference.
> Nobody says "I'm only getting a appetizer because if I invest the money instead this $20 will be worth more next week."
People in fact do that all the time. People spend less so they can invest more. They trade currency for an asset whose value they expect to appreciate. If that asset does indeed appreciate, they are far more likely to hold onto it than cash, especially if they expect to it to appreciate yet more.
I gave you a specific example of a prominent investor and Bitcoin advocate shifting from treating Bitcoin as a currency to treating it as an investment. Which you ignored, just like you're ignoring basics facts about finance.
It's like saying all computers are basically the same -- which they are -- and then going on to conclude desktops and smartphones and rack-mounted servers are all interchangeable.
Bitcoin may be a great investment asset. Time will tell. But its deflationary nature and its high volatility make it a bad currency. That's in obvious contrast to the original intention, which was a "purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
See here, for example, for a prominent Bitcoin advocate explaining that he no longer uses it as a currency: http://avc.com/2017/08/store-of-value-vs-payment-system/
This is especially a problem when a currency is used by a lot of people. It discourages economic activity and increases the value of debt. Imagine, for example, that you had taken out a Bitcoin-denominated car loan on Jan 1 2016 with a monthly payment of 1 BTC. That's about $440 at the time, or 15 hours at the median US wage. Now you'd have to work 40x as much to cover the loan payment, or about 20 hours a day just for your car. Meaning you would have been driven into bankruptcy.
Luckily for its users, Bitcoin never really took off as a currency, so their debts are in much more stable national currencies. But as you see with Fred Wilson, many experience sharp regret for the times they did use it as a currency.
Fred Wilson, a prominent VC investor and Bitcoin proponent, said as much in August: http://avc.com/2017/08/store-of-value-vs-payment-system/
Because neither you nor anyone is certain Bitcoin will become more valuable. If you knew, you would put all your life savings into Bitcoin this very minute.
That's the reason I personally have been spending bitcoins for 7 years, and will continue spending them. For all I know BTC might crash tomorrow and never recover.
Yes, and this is a concern for many. Bitcoin might not be the winner for reasons like this, but it is a leader and currently is the winner. There are a lot of people now thinking about these problems and even in some cases, how to add things like inflation to Bitcoin so that people do start spending it more than hoarding it
So people are aware of it, it is just too early in a lot of ways to tell what is going to happen.
Personally, it wouldn't surprise me if Bitcoin is like Mosasic and eventually we are using Firefox, Chrome, etc equivalents of cryptocurrency years from now.
I also save my USD “as long as I possibly can,” by which I mean “until I value something more than the USD it costs to acquire.” In practice, that very frequently ends up being relatively small purchases of things I literally need to survive and function in society, like food, rent, and clothing, but beyond that I try to save as much USD as I can despite it being nearly guaranteed to decrease in value over time.
Keeping savings simple at times is prudent. I have a feeling a lot people are going to be mostly in cash in the next 18 months...
So you’ve not answered the questions of “why would I spend this currency on _anything_, including other investments, if holding onto it is the best investment out there?” And how does bitcoin not consistently stay in a deflationary spiral?
Different people value different things differently, thus there is no universal agreement on what the “best investment” is. Remember that the price of Bitcoin cannot change without both a seller and a buyer. Each bitcoin bought is a bitcoin sold. The most obvious and simplistic example of a reason people might sell Bitcoins right now is that they are hungry and want food, but that generalizes to more complex differences between individuals’ time discount functions.
Its not guaranteed though. Bitcoin may go out of favor and coins can become worthless, doesn't matter how limited the supply is.
Why buy a computer/phone/car that is guaranteed to become cheaper next year, or obsolete within 2. If I were given the opportunity to purchase something that systematically becomes LESS expensive, I'd hold off on the purchase as long as I possibly could.
Because even in deflation, some trades are worth it.
At some point the expected increase in value will be on par with the utility value derived from making the transaction with the bitcoin you already have.
As with most financial assets with high liquidity, there is no such thing as "guaranteed to become more valuable". If it were, it would already be at that price.
One thing we know is that you can't trust market participants: https://en.wikipedia.org/wiki/Libor_scandal
BTC is difficult to short so if/when there is a sharp decline in price you have to rely on people buying futures instead of BTC outright. I suspect this isn't going to happen so on price declines the futures will fall further than BTC, also leading to bigger crashes in BTC.
Maybe that is a good strategy, wait for some weakness and sell the out of it to see how far it crashes.
Yes they're cash settled on the expiry date so on the 3rd Friday of the month the future that expires that date will have the same price as BTC.
When there is time to expiry though, what is the mechanism that keeps the prices aligned? If BTC is difficult to short natively, there isn't an easy way to keep the futures at fair price.
IE if BTC is worth 10k and someone keeps selling futures down to 9.5k, why would BTC drop? Only if a buyer chooses not to buy BTC but buys the future instead. But if the future keeps dropping those guys will get scared off.
The real thing is no one knows so we'll find out soon if/how this will work.
I assume that most interested parties will use these for hedging purposes, but there's bound to be a few poor souls out there waiting to use these for speculation.
Since these are USD settled, futures might put a damper on the rate of increase.
How can they grantee 'legality' of the coins being traded by those participants in the 2nd scenario? Let's say then the coins being traded in the 2nd scenario are identified by the IRS as 'bad coins' - will they freeze the coins held by that account until the legal dispute is settled?
How can you grantee the legality of coins in an option contract if the coins held by one party prior to the contract expiration are seized?
I'm very curious how they're going to handle these scenarios. Personally, I wouldn't trade on this.
Many investors want exposure to Bitcoin. A significant subset therof are perfectly happy with the financial system as is. They want Bitcoin to look like any other financial asset. These futures are the beginning of Wall Street serving that demand.
Disclaimer: This is not investment advice. Not all futures work like this. Review investments with a lawyer and/or investment advisor.
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures
This is not unprecedented. If you look at weather futures, for example, nobody's going to want to take delivery of a petagram of cool air. Or think about index futures: who wants to receive 1 share of 500 different stocks at settlement time? When the underlying commodity is hard to work with and people still want to gamble^W hedge their risk, cash settlement solves plenty of problems.
That makes sense here. People who need wheat or steel to run their business and want to lock in prices might buy futures. But approximately nobody actually has a business need to deliver 1,000 bitcoins in February. At best, they might want to hedge some sort of risk. But more likely, it's straight up speculation from people who don't care about Bitcoin as such, but just want to get in on the action.
Failing that, ill settle for a x3 ETF
Maybe in US inflation isn't a problem but in my country until a few years 7% inflation was low, although maybe the official inflation is low, but as far as I know asset prices have gone up due to quantitative easing.
I don't know how to read this other than as stating the same thing with different words, i.e. "tracking inflation" is just another way of saying that its valuable.
https://www.statista.com/statistics/299603/gold-demand-by-se...
Jewelry is definitely not just a fancier way to store gold. How many people do you know that sold their wedding rings when prices spiked?
I don't think intrinsic value is a meaningful term. Gold has been valued for millennia because it is very useful for making pretty things. And the price has been high for a long time because the supply of it is low.
There was a time when we hadn't the technology to produce aluminium in significant quantities like we do in today's factories, and it was more expensive than gold. And for that reason, it was used in jewellery, expensive cutlery and even the Washington monument.
Gold is mostly valuable for its scarcity and the way our culture has used scarce metals as a store of value, not because of its intrinsic value as a metal.
Today we can create artificial scarce tokens digitally, before using a centralised party to manage the ledger, today in a decentralised manner. Who knows whether gold's status will last, or in fact bitcoin's. Perhaps the noble notion of decentralisation won't be valued by markets in the end, perhaps there's no reason to respect one token's value for its scarcity when you can programmatically create a million clones on a single computer.
I've been a bitcoin enthusiast for half a decade, but the past few years I've seen a major decline in genuine interest in bitcoin other than as a get rich quick scheme. We used to have lots of cool and fun things going on, now it's bland and boring. People forget bitcoin's only value is its decentralised nature, yet the price increases don't reflect any significant growth in capturing the value of decentralisation, at all.
Thus, it is not the actual properties that make them desirable as jewelry. It is solely the fact that they are valuable that people want them for jewelry.
If the price of gold was to collapse tomorrow, it's use in jewellery would continue without pause.
You seem to ignore the simple fact that as demand grows for a limited resource, the price grows. So even if the "value" of bitcoin viz a viz decentralization has remained constant, its market cap goes up because demand has exploded.
There are many valuable things that are not made into jewelry. There are metals that are more valuable than gold, but they are not as commonly used in jewelry because they aren't as aesthetically appealing. Gold was used for making beautiful things in cultures that did not treat it as money. It became valued because it was uniquely workable, beautiful, and durable.
Part of gold's value is its rarity, certainly. But another part of it is utility. If investor demand for gold collapsed, it would still be valued.
Scarcity was necessary, for sure. But definitely not sufficient.
The intrinsic value of USD is it's the only currency you can use to pay taxes to the US government. The intrinsic value of gold is its industrial/commercial uses. The intrinsic value of bitcoin is a nearly incorruptable transaction ledger while also being trust less.
None of these things "just work", some or all will fail eventually.
If you look at an ATX motherboard from 2009 with an Intel processor and a MacBook Pro mainboard from 2017, the amount of material consumption to create a similar product has fallen dramatically. You can actually see Moore's Law, it's kinda beautiful.
Is there historical precedent for something to be as widely accepted as gold, which isn't considered valuable today?
https://gizmodo.com/how-aluminum-cost-more-than-gold-1575564...
This isn't intrinsic value. The government can conceivably decide USD is worthless (it won't, probably ever, unless the US collapses). USD relies on the US government for value.
Being able to burn money to start a fire would be intrinsic value. Same for gold's conductivity and its other industrial uses. They are physical properties.
Excuse me ?
What this is worth to the consumer (is currency a product? opinions vary) will vary, but diamonds without industrial use were valued at billions of dollars only 150 years ago. Large diamonds still carry multimillion dollar values, despite that a 32-karat diamond can be grown from carbon ash in a small plasma cell for only hundreds of dollars. Maybe even less if the laboratory is powered with a renewable energy source.
The diamond was perhaps my favorite currency to study. It is an object historically backed partially by human fascination with light, partially by industrial demand, but the industrial demand was slowly diminished by the introduction of synthetic grit and stones. Despite the low cost of manufacturing a synthetic diamond for jewelry, they usually depreciate immediately--that may be a comment on the consumer's demand by those who practice valuation, or it may be that a "used" diamond is somehow worth less than a "newly discovered or grown" diamond. Impossible to say.
Good talking to you!
https://en.wikipedia.org/wiki/List_of_aircraft_carriers_of_t...
and other things like that. Which is why even drug dealers that are hunted by the US trust US dollar.
But that is not income and would only put the US in debt, devaluing the USD.
I think the point he was alluding to is that countries hold a significant chunk of their foreign reserves in USD, which keeps demand for USD high. Other than the obvious trade aspect, one of the major reasons countries do so is because they purchase goods and services from the US military. (e.g. Japan, South Korea).
Saying Bitcoin is "backed" by generated electricity and computer hardware is like saying paper money is "backed" by the printing presses and labor that made it. Economically this is nonsense.
It is not backed by energy in a literal sense of course, that would be obviously meaningless. But the price of energy, BTC and mining difficulty are connected. A change in one variable affects the others.
From an economic standpoint it isn't backed by anything. Bitcoin doesn't have a direct correspondence with any commodity. I can't turn in a bitcoin and get the electricity back.
It's back by nothing. Monopoly money. So is the USD dollar and all other fiat currency. Bitcoin is a fiat currency without the fiat.
The labor of manufacture is perhaps why the fiat currency has value. This argument heads toward philosophy, but without the minting process (and its technological backbone), to some degree the dollar would be valueless cotton.
In nations where the fiat currency is printed on polymer, I feel that their fiat currency states something like, "Not only do we stand as the people of this nation and its currency, but our belief is such that we have printed the currency with a specialized ink on an advanced polymer."
Before you consider military or government or the world outlook, a belief like that is not worth nothing. That note has indeed been backed by something, and no way is it Monopoly money!
my prediction: huge amounts of bogus trades every day to manipulate it
"Bitstamp, GDAX, itBit and Kraken are the constituent exchanges that currently contribute the pricing data for calculating the BRR." http://www.cmegroup.com/media-room/press-releases/2017/10/31...
tl;dr:
- Increase access to btc (futures can be more liquid than BC itself, which has large transaction costs and transfer times)
- Probably reduce price volatility in general, but futures could also compound speculation
My guess is that BTC will rise in price, and I think the recent price increases are partially explained by the news of future markets.
In other words, you can take out a large short position without needing any fulfillment while at the same time it factors as 'shares short' against Bitcoin. 'Shares short' is a major component used by institutions to calculate or re-price to the downside and when these numbers are inflated that can result in inaccurate pricing for the benefit of the manipulator.
There are plenty of examples of this and one of the most high profile cases is related to OSTK (Overstock): https://en.wikipedia.org/wiki/Patrick_M._Byrne#Campaign_agai...
It's a high-level form of manipulation. This will also reduce Bitcoins volatility and opportunity for large gains in short periods of time.
Of course the reverse is true if institutions want to battle it out on the short and long side but meanwhile the banking divisions of investment banks (JPMorgan et al) remain scared to death of Bitcoin. Ultimately, Bitcoin will have to have more institutional allies and supporters than the worlds banks (banks hate Bitcoin, it makes them irrelevant in the near future) which is quite possible.
New cryptos with low floats (low circulating supply) won't be affected as much thereby offering larger gains in shorter periods of time which will attract more of the typical cryptocurrency day traders and traditional traders.
More on this here: https://news.ycombinator.com/item?id=13844765
"The basic form of short selling is selling stock that you borrow from an owner and do not own yourself. In essence, you deliver the borrowed shares. Another form is to sell stock that you do not own and are not borrowing from someone. Here you owe the shorted shares to the buyer but "fail to deliver." This form is called naked short selling. These short sales are almost always done only by options market makers because they allegedly need to in order to maintain liquidity in the options markets. However, these options market makers are often the brokers or large hedge funds, who abuse the options market maker exemption. (For more, see How To Work Around A Market Maker's Tricks.)
Shorting Without Failing to Deliver There is another form of short selling, which I describe as synthetic short selling. This involves selling calls and/or buying puts. Selling calls makes you have negative deltas (a negative stock equivalent position) and so does buying puts. Neither of these positions requires borrowing stock or "failing to deliver" stock.
A collar is nothing more than a simultaneous sale of an out-of-the- money call and a purchase of an out-of-the-money put with the same expiration date. Another way to short sell is to sell a single stock future, which is equivalent to naked short selling. No shares are borrowed, however, and no shares are failed to deliver..."
"... There are similar future transfers if you have sold calls or sold single stock futures. When you buy puts and fully pay for them, there are none of these money transfers after the purchase, although the value of your account certainly fluctuates as the value of the puts fluctuates.
All of the above ways to obtain negative deltas cause pressure on the value of the stock similar to how straight sales of long stock puts pressure on the price of the stock..."
Continued via the link above which is well worth the read. All things considered, we are ultimately talking about derivatives and derivatives of derivatives.
source: cfa, sellside and buyside trader.
Could be a great opportunity to arbitrage based off of price desync across exchanges.
It seems like this thing is ripe to create either some systemic financial crisis or help governments of countries that are not exactly allied with us interests (china, dprk etc).
They can even make using PGP illegal, and there are politicians trying.
Unless you have a recent example?
For a reference, I mentioned your example of PGP, which would be made illegal to use under this proposed law https://www.scribd.com/doc/307378123/Burr-Encryption-Bill-Di...
These products built on each other: the ability to hedge with futures will enable the creation of additional Bitcoin products and services, entangled with each other in complicated financial networks.
Regardless of what you think about it, Bitcoin is slowly but surely becoming a PERMANENT component of the world's financial infrastructure.
It's not difficult to imagine a future in which having some kind of Bitcoin exposure in a portfolio becomes conventional wisdom.
If I'm positive it's a pyramid scam, why should I put my money into it?
Likely what's happened/happening is money is being sucked out of our economy into a shadier one. Silly American buys some bitcoin with their credit card a Russian who spun up a miner buys some gold with their credit card debt. Silly people see bitcoin goes up, think equity's been created there. It's debt.
Remember, you'll need some idiot to buy your shares if you want to cash out.
It’s being propped up by a few huge investors. Once those investors have tripled their investment and grown bored speculating, they’ll move on, and there’ll be a run on crypto driving its value through the floor.
So any exposure through retirement accounts or other investment products seems really dangerous.
But idk
Can you point out to any example in history where an institutional investor has gotten out of investing because they have grown bored, and the profits they have are enough for them?
funds are usually made up of larger contributors so while idk of an investor that’s grown bored there are plenty of examples of funds offloading investments for other financial products
You'll see some institutions move away from the BTC/USD market for this reason.
- Unlike LedgerX, the futures will settle in cash, NOT in Bitcoin. So they won't directly create demand for more Bitcoin.
- In effect this is a "bookie pool" for institutions to place side-bets on bitcoin. Although there might be some consumer participation - I reached out to several CME brokers and at least two of them, NinjaTrader (US) and RBC (Canada), intend to provide the futures product to their retail investors (pending internal review).
- Biggest customers will probably be institutions who want to short (bet against) Bitcoin, and those who want to establish a long position (bet in favor of it) but are prevented from buying bitcoin directly (due to regulations, security / handling concerns, etc). You would think the CME trade throttling rules in particular would make buying the asset directly a more attractive option for those who want to go long and have access to other marketplaces (i.e. existing exchanges). For that reason, after the initial "rush" to get in, I think there's a risk the CBOE and CME markets will tend to attract more "shorters" than "longers".
- Naked shorts (placing short orders for assets you don't have and don't intend to buy) are an interesting aspect which I don't fully understand. I think the practice is illegal in US securities, although one of the exchanges from which the CME price index will be derived (Kraken) apparently already allows naked shorts (surprised that didn't catch the eye of regulators).
- A lot of the money in Bitcoin today is retail. Are those folks ideological, or easily spooked? (Probably a mix). What happens if folks start seeing red futures around the corner? Is there a risk the futures indices (with their more-disciplined institutional money) will start leading (rather than following) the Bitcoin price?
While I'm excited by this development (obviously a lot of great PR) I'm concerned there might be risk of it backfiring compared to the overly optimistic expectations I've been reading from existing Bitcoin holders. I really do hope it paves the way to ETF's (where you actually buy a basket of Bitcoin) - something I'd be a lot more excited for. In the meantime, here's hoping my cautious skepticism is unwarranted.
There's some good discussion over at Quora: https://www.quora.com/How-will-futures-trading-on-CME-affect...
USD M2: https://tradingeconomics.com/united-states/money-supply-m2