Trading bitcoin futures is a game changer for the whole crypto currency space. Here are some related aspects.
In a recent post, @jrcornel asked "What do the introduction of Futures Products really mean for the price of Bitcoin?" The post ended with the following remark: "Let me know what you think ... Will it make prices continue to make new highs as new money continues to enter the space, or will it cause bitcoin to be shorted into the ground by the players who would love to see it killed?" The post is here.
The question he raises is an aspect of a related question about the various ways that futures trading is going to impact trading strategies and tactics of those dealing with BTC ("the underlying" as we say in the stock options sphere), as well as the time pattern of BTC spot prices. When I speak of "time pattern", I mean more than the price level issue (will it be up or down relative to current levels?). Consider the volatility pattern for example.
Here are some key references to help people get up to speed on what could be unfolding in the weeks ahead as both CBOE and CME open shop on bitcoin futures trading.
(1) There is a very long commentary on some of the ins and outs of cash settlements in bitcoin futures here. Make sure to see the second commentary, posted near 3:00PM today.
(2) Don't miss this tweet by Charlie Lee. It is followed by a long series of comments where the issue of opportunities to short BTC (via futures positions) is discussed substantially. As a futures Dummy, I found this very educational.
(3) "Bitcoin futures could lead to a Lehman-style collapse" says Shawn Langlois here . He lays out the scenario, and it seems far-fetched to me (remember I'm a Dummy); but something in that scenario rings a bell from my multitudinous stock market days. A big price crash triggers widespread brokers' margin calls, and traders with "shallow roots" are wiped out or face catastrophic losses.
(4) In its cash settlement process for futures trading of bitcoin, CBOE is said to have announced that it will be relying on spot prices in the Gemini Exchange. At this tweet, you will find commentary about the implications of placing Gemini in such a key position.
This subject (impacts of futures on cryptocurrency spot-price trading -- not only bitcoin but coins with correlated price patterns) is so important that I really want to stack all of this post below @jrcornel's article. That way we could all follow what will be a key discussion as one thread; but his was posted 4+ hours ago. It is now hard to find on Steemit, and almost no one (incl. the author) would pay any attention to my remarks if I chose to place them at the bottom of his post at this time.
It's an interesting discussion, the volatility of this asset will mean that it's unlikely institutions or large investors will take large speculative positions. This might mitigate the likelihood of a Lehman's style collapse.
You are the first person I have seen at Steemit who touches on a big downside of the volatility. “Everybody” seems so excited by the almost daily price vaults; but if you were a pension fund manager or a mutual fund custodian with custody of millions of "mom and pop" money, why would this scene be of any interest?
Also, people doing trade settlements using BTC will have to be nimble with options-type hedges in case a big price vault/dip takes place while they are holding a big bunch of the coin. In this setting even a quick 3 to 5 percent unexpected price change can be troubling.
Here's something else that bothers me a lot. I went over to my bitcoin ATM when its near 9K a few days ago, and there was poignant sign saying that the operator could no longer afford to keep the machine running due to the fees and the blockchain congestion. I went home asking myself why this service is more desirable than my bank ATM! It seemed to be "bush league" by comparison (and that was the third time in the last few months the ATM was down while BTC was at a good price).
Thanks for raising some questions on my post. I've read several of your posts and you bring up very good points. While I seem perhaps "enthusiastic" it is because of the awareness of cryptocurrency and even more so on blockchain.
How are you keeping your cryptocurrency by the way? Do you have a hard wallet?
You are so kind @theminimalists! I share your enthusiasm over the potential of a nice crypto portfolio to do far more far more for me than a block of fiat-based fixed income holdings when I will need to spend down the capital in future years (God willing re. both health and longevity), and over the potential of community-based cryptos to lift people out of abject poverty at various places around the world. (This latter assumes that those community economies will evolve to the point that there will be minimal need for people to cross the bridge between crypto and fiat to buy bread and pay rent.
Re. my crypto holdings today, I have three copies of my private and public keys on paper, and on an external hard drive and a USB drive, neither of which are accessible to hackers for anything more than a few minutes at a time. The only pieces I have at an exchange more or less indefinitely are the few dollars locked in Steem Power.
P.S. I hope you are already or are planning to get nimble on one or two of the decentralized exchanges (at this point I have only plans but they will be implemented very soon -- two of them: Bitshares and Bisq). There are so many stories on the Net now about people not having access to their stuff at the exchanges at the most awkward times.
Re. Bitshares, I have spent several hours digging through the literature about their problems, going back to big debates about their “failure” during 2015. I feel their DEX has a solid future, except there is a good bet SEC will declare BTS to be an illegal security. I am wondering the Bitshares Foundation will be forced to take BTS off the market when that happens. (BTW, I read that getting SEC approval for your security offering costs about $300,000, so I wonder why @Dan’s dad doesn’t cash out some his crypto holdings and get on with seeking SEC approval for BTS.)
Anyway, if you see a key reason why my optimism on the future of the Bitshares DEX needs to be reconsidered do let me know. Also, I read a long and learned exchange in Reddit where it was agreed among the discussants that STEEM also faces the same fate as BTS, regarding SEC eventually declaring it to be an illegal security based on the Howey test.
I am new to cryptos only as a holder of the stuff. I was studying books and educational videos about bitcoin and blockchain back in early 2015; but until I stopped my active stock options trading in fall 2016 I never had any interest in buying cryptos.
Cheers!
Well I strongly believe you should never leave too much cryptocurrency in any exchange as you are leaving yourself to vulnerabilities that could be easily prevented with hard wallets, USB...etc. The vulnerabilities can be the work of internal or external hackers and believe me hackers are only going to grow.
I see exchanges as a quick way to buy cryptocurrency because I'm not a miner. The only thing that you have to be cautious about is the information you are giving them about yourself. Use a bank account/debit card you only use for cryptocurrency or use one that has very low funds. I have several bank accounts for this reason. It may seem paranoid but if you were ever robbed you won't feel like an idiot.
When I try to simplified my understanding of the blockchain technology behind STEEM I don't worry on the legitimacy of it as I have never spent any money buying STEEM. Because you can earn it through writing posts (posts of which id written on Reddit for free anyways and only get points for), I don't see a reason why not just continue to work for it. It's no different than YouTube. When I studied YouTube, you don't really start making money until you get 1 million views and before that YouTube makes a lot of money from advertising ads . There's always a give and take especially for something that's created more extensively. Seeing how steemit is growing I don't see it going anywhere.
Thanks for your info. I too have my fiat holdings spread across several banks, even though it's just a small total.
BTW -- I got deep into literature on the Howey test today, and I think I was wrong about BTS likely to being declared a security. @Dan and his dad have done a clever job of wrapping management into the BTS holders in a diffused way. Thus SEC is going to have a hard time claiming that there is one group holding the security and a separate group out their doing the work to bring profits to the security holders.
Unfortunately, Steem Power and Steem Dollar seem to be in a grey area. It's only grey though; because I think @Ned is going to argue that it is the work of the Steem Power holders that is creating and distributing their profits, and Steem Dollars are largely earnings for posts written, etc.
One thing to note is that when SEC disagrees with you and you lose the case the feds get the right to "seize assets". So if @Ned loses we will not have a chance to simply power down our SP; because it will be taken away.
I haven't seen bitcoin as a viable payment currency for a long while, but it does have some desirable features and it may be a good balance between simplicity, transparency, security, scarcity and speed for use as a reserve currency or store of value. Better alternative may emerge though. In terms of investments until liabilities become denominated in bitcoin is unlikely to be of value to institutional investors outside of pure speculation. In my opinion.
Interesting point you make about the liabilities, @eroche, and thanks for the learning.
The whole futures thing is going to be interesting to watch unfold. Might be a good time to just hold BTC instead of trade, but I am not sure. We shall see. Great Post!
Thanks @birdbyte. I am asking myself how many people are effectively doing short-term of trading BTC these days (unless they are Big Boys armed with their trading robots). Very long before the current excitement over BTC I felt uncomfortable about the length of time it was taking to have my BTC actions confirmed (having been an active stock options trader).
I read some place in the last day or so that only about 1 million BTCs are actually being bought and sold (though I cannot vouch for the quality of that estimate).
Do you have an opinion or data/estimate on the proportion of all these currently backlogged transactions represent traders going in an out versus people just buying to put the stuff away, like their gold?