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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
by rb808 9y ago
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.
- wpietri 9y agoCould 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.
- lawlessone 9y agoIf they're cash settled doesn't that mean nobody even has to buy more bitcoin? Just a bucket shop?
- vasilipupkin 9y agoyes. To speculate on bitcoin nobody ever needs to buy any bitcoin anymore, if futures gain significant volume.
- rb808 9y agoThat'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.
- solotronics 9y agothe 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 ).
- kgwgk 9y agoBut 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).
- thibautx 9y agoIt should in theory track extremely closely -- any mispricing between the future/spot will be arbed out by HFTs almost instantly.
- rb808 9y agoHow? That is the question. You can't short bitcoin so you can't arb it.
- mathgenius 9y agoI 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.
- thibautx 9y agoTo my knowledge exchanges including Gdax offer margin trading and ability to short.