4 ms·

Institutionals use futures to hedge their other positions. What will they use bitcoin futures to hedge for? An unhedged future position is not an investment. It

Institutionals use futures to hedge their other positions. What will they use bitcoin futures to hedge for? An unhedged future position is not an investment. It is a gamble.

kolbe 9y ago
This is not the correct definition of an institutional investor. http://www.investopedia.com/terms/i/institutionalinvestor.asp http://www.investopedia.com/terms/i/institutionalinvestor.as...
sgspace 9y ago
Bitcoin is a hedge against fiat and the fractional reserve banking system.
- matt4077 9y ago
  It doesn't make sense for institutional investors to hedge against "fiat". Because the failure of the current financial system would be catastrophic event for any such investor, at which point his hedging wouldn't help. I. e. the exchange where these futures are traded would no longer be operational. There's a name for this effect which I've forgotten. But it can be seen, for example, in the markets ignoring the risk of nuclear war during the Cuban Missile Crisis. The reason is the same: there's no use in considering nuclear war in your decision-making, because you'd be dead anyway.
  - Fomite 9y ago
    This. If "fiat" collapses that's a catastrophe far beyond the level of "No worries, I have some bitcoin futures in an exchange." It's like saying bitcoin is a hedge against the end of the world.
  - 627467 9y ago
    couldn't this be a hedge against ANY (but not all) failure of some financial system somewhere?
ThrustVectoring 9y ago
>What will they use bitcoin futures to hedge for? That spot prices of bitcoin is lower than expected, making their current "buy mining equipment, hook it up, and generate bitcoin" operations unprofitable. Miners as a group will be net short BTC futures for the same reason that corn farmers are net short corn futures. The longs will in because of the shorts - since carrying costs are so low, the futures will trade below the spot price, which means buy-and-hold BTC investors are better off rolling BTC futures contracts than the underlying.

Institutionals use futures to hedge their other positions. What will they use bitcoin futures to hedge for? An unhedged future position is not an investment. It is a gamble.

kolbe 9y ago

This is not the correct definition of an institutional investor. http://www.investopedia.com/terms/i/institutionalinvestor.asp http://www.investopedia.com/terms/i/institutionalinvestor.as...

sgspace 9y ago

Bitcoin is a hedge against fiat and the fractional reserve banking system.

matt4077 9y ago
It doesn't make sense for institutional investors to hedge against "fiat". Because the failure of the current financial system would be catastrophic event for any such investor, at which point his hedging wouldn't help. I. e. the exchange where these futures are traded would no longer be operational. There's a name for this effect which I've forgotten. But it can be seen, for example, in the markets ignoring the risk of nuclear war during the Cuban Missile Crisis. The reason is the same: there's no use in considering nuclear war in your decision-making, because you'd be dead anyway.
- Fomite 9y ago
  This. If "fiat" collapses that's a catastrophe far beyond the level of "No worries, I have some bitcoin futures in an exchange." It's like saying bitcoin is a hedge against the end of the world.
- 627467 9y ago
  couldn't this be a hedge against ANY (but not all) failure of some financial system somewhere?

ThrustVectoring 9y ago

>What will they use bitcoin futures to hedge for? That spot prices of bitcoin is lower than expected, making their current "buy mining equipment, hook it up, and generate bitcoin" operations unprofitable. Miners as a group will be net short BTC futures for the same reason that corn farmers are net short corn futures. The longs will in because of the shorts - since carrying costs are so low, the futures will trade below the spot price, which means buy-and-hold BTC investors are better off rolling BTC futures contracts than the underlying.