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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 s

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.

joobus 9y ago
I'm pretty sure this is a cash-settled future. No coins are changing hands.
JumpCrisscross 9y ago
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.
- karpodiem 9y ago
  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?
  - thess24 9y ago
    No. Because they are cash settled, only cash will change hands.
wpietri 9y ago
It's cash settled. No actual Bitcoins change hands: http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures 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.
- karpodiem 9y ago
  Will CBOE offer the ability to accept coin delivery in this market?
  - lurker456 9y ago
    no, it is cash settled only
bobcostas55 9y ago
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.

joobus 9y ago

I'm pretty sure this is a cash-settled future. No coins are changing hands.

JumpCrisscross 9y ago

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.

karpodiem 9y ago
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?
- thess24 9y ago
  No. Because they are cash settled, only cash will change hands.

wpietri 9y ago

It's cash settled. No actual Bitcoins change hands: http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures 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.

karpodiem 9y ago
Will CBOE offer the ability to accept coin delivery in this market?
- lurker456 9y ago
  no, it is cash settled only

bobcostas55 9y ago

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.