13 ms·

Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

199 points by rayuela 9y ago

gchokov 9y ago
Can’t really wrap my head around the rise of BTC in futures trading, as they are all cash settled. In other words, pure betting and gambling with the futures, as they really do not touch the underlying BTC. I guess, just a regular day in the massively manipulated crypto currency world...
- module0000 9y ago
  It’s about risk management. The highest volume futures contracts are cash settled as well(ES, NQ, ZB, 6E’s). Example usage 1: you may want to own BTC and de-risk before economic events by hedging <x>% short BTC contracts.
  - kgwgk 9y ago
    As if there was any link between BTC and economic events...
    - tehlike 9y ago
      was this a /s? IF it's not: With the current HODL mentality, you can imagine the bitcoin price go even higher. I wish the same HODL'ers were around in 2008, things would have been much different. "Buy the dips" is the best investment strategy that became mainstream thanks to bitcoin.
      - ryanwaggoner 9y ago
        Wait, I’m sorry, are you claiming that Bitcoin HODL’ers gave us the ‘buy the dips’ strategy? :)
        tehlike 9y ago
        No, i said they made it mainstream, to the guy who had 500$ as investment.
    - module0000 9y ago
      There is a link between all currencies with value and major economic events. FOMC minutes, FOMC rate decisions, GDP, NFP... just to name a few. Look at your BTC quotes at the timeframes those events are released to see for yourself.
- camillomiller 9y ago
  Crypto might even be manipulated, but in this case what’s the issue? I don’t get your logic. Some independent financial entity decides to start trading futures on horse manure. That makes horse manure a heavily manipulated underlying financial product?
  - gchokov 9y ago
    Well. You will see what manipulation means when the first contracts are about the expire!
    - camillomiller 9y ago
      Mid-january then?
      - gchokov 9y ago
        yes
  - IncRnd 9y ago
    > That makes horse manure a heavily manipulated underlying financial product? Yes. You will find people who use their fields of cows to pass off excrement as horse manure, injecting various gasses into the manure to pass excrement-inspections. You will also find actual owners of horses who discard half their horse manure.
- sliverstorm 9y ago
  Just the next step from the Bitcoin economy, to the Bitcoin Standard economy, to the eventual Bitcoin Fiat economy. Seriously, the Lightning network looks a lot like the old Gold Standard, and the arc of Bitcoin seems to be reinventing modern currency, so I'm trying to figure out what's next.
  - isoprophlex 9y ago
    Fort Knox storing paper BTC wallets instead of gold?
  - JanSt 9y ago
    To me, the Lightning network looks like a terrible idea. It achieves nothing that an increased blocksize would not have done on-chain yet wraps a faster-layer around the slower, deliberately crippled (1MB) blockchain and does require multi-hop liquidity that must be provided by interested parties. My understanding would be that the slower layer (like TCP) would be stacked on the faster layer (like IP). The lightning network seems all wrong to me. If the Lightning network is so great, why do we need a blockchain at all? If not, why not just increase the blocksize? It achieves nothing that couldn't be done on-chain. There have been successful tests of blocksizes of up to 1 GB or 1000x the current size. Even getting it up to a small multiple of the current size would dramatically cut transaction costs and waiting times.
    - raverbashing 9y ago
      My opinion exactly It's not a "terrible idea" it is what should have existed in the first place in the oficial blockchain They're just adding a 2nd layer on top, calling it official and then saying "bitcoin is working"
      - homakov 9y ago
        It should _have_ existed, but the idea came around only about 2015? It's evolving slowly. But if it were "built-in" would be a lot better of course.
    - 9y ago
- gibybo 9y ago
  The markets are not as independent as they might seem. If the futures market gets ahead or behind of the other BTC markets, it creates opportunities for arbitragers to profit from the difference which has the effect of reducing the gap. It doesn't matter that they are cash-settled. For example, if lots of money start pouring into Bitcoin futures, the futures price will rise above the price on BTC exchanges. It will then be profitable to sell the futures while buying Bitcoin on the exchanges, which drives the price of Bitcoin up on the exchanges. When the future matures, you just sell the Bitcoin on the exchange and pay your cash-settlement on the future for a guaranteed profit.
  - gchokov 9y ago
    Excellent explanation - thank you.
  - pash 9y ago
    More precisely, it is possible to replicate the final value of a futures contract (on Bitcoin or any other asset) up front, by trading in the spot market, even though a futures contract’s payoff is uncertain until it expires. Whatever the future’s value ends up being at its expiry, you can put together in advance a portfolio of holdings that will have the same value simply by borrowing a certain amount of cash and using it to buy in the spot market a corresponding amount of the asset on which the futures contract is written; if you do this, the value of your holdings in cash (after paying interest on your borrowings) and in the asset are guaranteed exactly to equal the value of the futures contract at expiry, no matter what price the underlying asset ends up trading at then. So if there is any deviation in the value of the futures contract (at any point in its lifetime) from the aggregate value of the cash and assets in the portfolio that replicates its final value, then there is an opportunity for a pure arbitrage. Consequently trading by arbitrageurs bounds futures prices in a tight range determined by the variables that set the cost of putting together this replicating portfolio: the price of the underlying asset, the interest rate on cash and the yield on the asset (if any), the time until the maturity of the futures contract, and cost of transacting in these markets. This arbitrage relationship is about as hard they get, so trading futures is tantamount to trading the underlying asset itself, since changes in price in the futures market will be translated directly via arbitrage into changes in price in the spot market for the underlying asset, and vice versa.
- emerged 9y ago
  My read is that futures trading legitimizes Bitcoin, perceptually at least signaling mainstream financial adoption of Bitcoin. I'm sure that read is only one of the myriad of subjective factors involved (let's all agree that Bitcoin rises and falls in clouds of collective subjective perception), but I think it may be the dominant one.
  - FireBeyond 9y ago
    I'd say the dominant factor is "the sheer number of exchanges that have varying degrees of resistance, from mild to total, of converting BTC to USD" ... Be they delays on withdrawal, explicit, or just ghosting. Be they unrealistic minimums (Bitfinex will not process such a transaction for >250BTC, $4.5M or so at today's rates). Be they whatever flavor excuse-of-the-day. Some exchanges need to learn to walk before they run.
- devit 9y ago
  As far as I can tell it's just a way to outsource holding the BTC. A BTC future can be perfectly hedged by taking a loan until the settlement date and using it to buy 1 BTC, holding it until settlement and then selling, so that's probably what the counterpart selling the future is doing.
  - vasilipupkin 9y ago
    Not quite, since futures are marked to market every night, there is additinal cash flow relative to your scenario
  - ithinkinstereo 9y ago
    As others have mentioned, contracts are marked-to-market on a daily basis, which impacts the margin needed to hold the contract. With wide price swings, this can force you to close your position before it settles in order to meet margin, especially if you're trading with leverage. CBOE also has a really high margin requirement (I think 40%+), so the capital costs to play are quite high here.
- olalonde 9y ago
  https://news.ycombinator.com/item?id=4693920 https://news.ycombinator.com/item?id=4693920
- capex 9y ago
  Or, just a regular day in the massively manipulated futures trading market...
- delhanty 9y ago
  Randy Mitterling, Nassim Taleb, Chris Cook appear to agree with you. [1] So maybe that's the way it is - Bitcoin futures the biggest crypto ponzi scheme yet? [1] https://twitter.com/nntaleb/status/939852491130396673 https://twitter.com/nntaleb/status/939852491130396673
- hanzulrich 9y ago
  It’s so weird, people are treating it like a share instead of a currency
thisisit 9y ago
Is someone able to find how the cash settlement of these futures handle forks? I can find CME's policy but nothing for CBOE: http://www.cmegroup.com/education/cme-bitcoin-futures-frequently-asked-questions.html http://www.cmegroup.com/education/cme-bitcoin-futures-freque... > 31. What is CME Group’s policy regarding hard forks? > CME is developing a hard fork policy for capturing cash market exposures in response to viable forks. The policy may involve cash adjustments to position holders or listing related futures that are also issued to position holders.
- provost 9y ago
  Sounds like if a fork were to happen soon (not that it will) they would have to freeze the exchange, as they don't have a plan. I've noticed Coinbase does this as well, though they email a clear explanation about each upcoming fork-freezes and their intentions for each scenario.
  - where_do_i_live 9y ago
    Coinbase froze deposits/withdrawals, trading on the exchange often continues normally.
idibidiart 9y ago
Is this just legalized gambling?
- sametmax 9y ago
  That's pretty much what people use stock market for anyway. Most investors are no warren buffet, they bet at best on educated guesses.
  - esarbe 9y ago
    You are talking about speculators. Anybody that holds an financial instrument for less than five years (my definition) is a speculator. Warren Buffet is an investor. He buys a business (he thinks) he understands and then holds on to it while it generates profit. It really bothers me that - in business terms - investors are nowadays just lumped together with speculators. Investors try to build something while speculators just try to make money, no matter the cost to anybody else.
    - Cthulhu_ 9y ago
      I'd argue that some investors - the angel / startup investors - are gamblers, they place their bets on 100 startups and bet that one of them will be the next Facebook and eventually either sell for billions, or go to the stock market itself to get billions. The more traditional investor gets a stake in a company and due to that stake gets a say in the running of the company, thus having an influence on its future and growth (or decline). Less of a gamble there, it becomes part of their own responsibility then.
    - sah2ed 9y ago
      > Investors try to build something while speculators just try to make money, no matter the cost to anybody else. Based on your definition, what would you call Carl Icahn then? I tend to agree with John Bogle's definition that both types of people are in it for the money, the only fundamental difference is the time horizon either is willing to wait to reap the returns from their investment. [0] https://en.wikipedia.org/wiki/John_C._Bogle#Investment_philosophy https://en.wikipedia.org/wiki/John_C._Bogle#Investment_philo...: The main difference between investment and speculation lies in the time horizon. Investment is concerned with capturing returns on the long-run with lower risk, while speculation is concerned with achieving returns over a short period of time. Bogle believes this is an important analysis to be taken into account as short-term, risky investments have been flooding the financial markets.
basicplus2 9y ago
So what happens when the entire earth's energy production is required to produce the next bitcoin and there is therefore no further bitcoin mining?
- erdbeerkuchen 9y ago
  My understanding is that if enough people stop mining the difficulty will be lowered so that the energy costs fall. Also there are transaction fees.
- sametmax 9y ago
  Bitcoin is limited at 21 million coins. After that, no more btc, and people will trade in btc divisions such as satoshis. But there are hundrerds of bitcoin alternatives now, some very interesting.
  - Cthulhu_ 9y ago
    If there's no more miners / mining, who verifies the transactions? (iirc that's what miners did, but correct me if I'm wrong and miners only generate currency and don't verify transactions)
    - endless1234 9y ago
      They do verify transactions, and are incentivized to do so by transaction fees
      - Frogolocalypse 9y ago
        They don't verify transactions actually. That is what nodes do. They retrieve valid transactions from nodes, order them, and then hash them according to the consensus proof-of-work algorithm, which in this case, is SHA-256, until it produces a block that will satisfy the node consensus requirements.
        pointsphere 9y ago
generalizethis 9y ago
It's ironic that wall street spent so many years saying Bitcoin is worthless, but is buying-in when it's lost its use case to competitors within cryptocurrency, and really is useless (except as a speculative vehicle or "store of value"). I guess BTC can fork infinitely, so there's that.
- em3rgent0rdr 9y ago
  Actually, Lightning Network will significantly increase Bitcoin's transactions per second and reduce transaction cost.
  - theadamp 9y ago
    In 18 months ;)
    - generalizethis 9y ago
      "Soon"
    - Klathmon 9y ago
      To be fair, Lightning works, and it works now on the Bitcoin mainnet. The idea is sound, the code is written and somewhat tested, and it has been used in a very controlled fashion on the real bitcoin network already. At this point it's just a matter of further testing and validation that the logic is sound and there isn't anything everyone is missing, and getting vendors on board and adoption started. Still no guarantee it will happen, but it's looking more likely that it will at least make a good push, and it's no longer a vaporware promise of "in 18 months".
      - FireBeyond 9y ago
        I'm struggling to find references, so apply salt as needed, but I'm fairly sure I've read multiple references to the fact that the LN developers themselves describe it as pre-alpha and still a few years away. Which, to be clear, isn't necessarily vaporware - I think most people are in agreement that the concepts are sound, but that integration of the execution into the mainstream are quite a ways off.
LrnByTeach 9y ago
I am trying to understand risks with arbitrage for professional traders with BTC spot (at Coinbase gdax) and CBOE Futures contract. Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously" At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously. http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures you wait one month for the Futures contract to expire (Jan 17 th) , let us examine two scenarios by contract expiry Jan 17 th . case 1: Bitcoin price shoots to $25,000 case 2: Bitcoin price drops to $8,000 In both cases on the futures contract expiry date that is January 17 th 2018, bitcoin Futures price and Spot price will be almost same ( give or take $100) In both cases professional traders profit is $2000 for each futures contract on the investment of $16,700 Spot + $10,000 future initial price. That is $2000 profit on $26,700 investment for one month period , that works as 7% return per month, annualized 84% . You may need to deduct cost of money that is interest on investment or loan say 6% per year . One risk I see is, on the Short sell Futures contract, if the bitcoin is keep rising in price , trader needs to supply more money to meet the margin call ( just a technial issue because he is gaining on the LONG Buy bitcoin spot price ) Am I missing some thing ??
- isolli 9y ago
  Liquidity I assume. It may be difficult to sell $25,000 worth of Bitcoin at the settlement price on the settlement date. Slippage could be more than the $2,000 profit you estimated. Especially if many people do the same trade.
- andruby 9y ago
  (I am not a professional investor) Why is there a gap of 11% between the CBOE Future contract price and the BTC Spot price? Should they not be closer in a perfect market? Maybe the gap will be the same on the contract expiry date? Is this because the arbitragers still need to integrate the CBOE Futures into their system? Even between bitcoin exchanges, the bitcoin price varies. $17240 on cex and $16310 on bitstamp.
  - LrnByTeach 9y ago
xHopen 9y ago
Buy Ethereum
- etr-strike 9y ago
  The Ethereum network is imploding under its own weight. Running an ethereum node has become quite expensive and requires very state of the art hardware just to keep up. There’s a reason bitcoin chose the constants it did.
  - vvillena 9y ago
    What? 2GB of RAM and 15GB of decently fast storage (preferably SSD) are the only hard requirements. That's not state of the art by any means.
    - xHopen 9y ago
      They don't know what they say , but what the news tell them. I run an Ethereum node in a crappy hardware just for the network. and , as they may not know, you can run light ethereum nodes as they https://slock.it/ethereum_computer.html https://slock.it/ethereum_computer.html do. They are all focus in price , we are focus in technology and of course MOON
  - pietjepuk88 9y ago
    When syncing, you can choose to either build and save the state for every block ("archive" mode), or save only the latest state ("fast" mode). The former requires quite a bit more data than the latter (currently 500 GB vs 32 GB for the Geth client) [0]. The default for most contemporary clients is "fast" mode. Note that with the "fast" mode you still have all the blocks, and with that all the information needed to recreate the state at a certain block somewhere in the past. And you can still help the network by syncing those blocks to newly spawned archive or fast nodes. It's just that requesting the state (e.g. balance) at a certain block in the past takes some computational work. Most people are not interested in that however, which is why it's the default synchronization mode. [0] https://etherscan.io/chart/chaindatasizefull https://etherscan.io/chart/chaindatasizefull vs https://etherscan.io/chart2/chaindatasizefast https://etherscan.io/chart2/chaindatasizefast
beberlei 9y ago
How can you buy those futures as a regular joe? CBOE seems to be aimed at certified traders
- Arnt 9y ago
  You can't, on purpose. The idea is that there are two kinds of investors: Sophisticated ones who can look out for themselves, and regular joes, who are protected against being ripped off by extra regulations and extra paperwork. Bitcoin futures aren't the kind of product for which anyone will go though those regulations and do that paperwork. Now, how do you become a sophisticated investor? First of all, have a spare million or tow. Next, fill out a quite simple form.
  - Cthulhu_ 9y ago
    I can imagine bitcoin will one day become tightly regulated and only available to sophisticated traders; the network only supports 15 transactions per second, limiting who can do trades is one way to deal with it. NYSE can do about 11K a second (based on https://www.quora.com/What-is-the-average-total-number-of-trades-daily-on-nyse https://www.quora.com/What-is-the-average-total-number-of-tr...)
    - deleted 9y ago
      [deleted]
    - jstanley 9y ago
      The amount of transactions the bitcoin network can handle is totally unrelated to the amount of trades that can be performed on exchanges.
      - CoryG89 9y ago
        Correct, however, the number of transactions that can be handled does matter when it comes to moving BTC out of or between exchanges.
  - gibybo 9y ago
a_imho 9y ago
How would a bitcoin crash look like? Any far reaching consequences? Can one safely ignore bitcoin and remain ignorant?
- tehlike 9y ago
  if you want to hedge against a significant rise, you might wanna hold an amount you are comfortable losing.
  - fernandopj 9y ago
    This. And it is what I say when friends & family say it "must be a bubble" or "journal X say stay away". Investing/risking is not a binary, all or nothing bet. Just set aside some money you have not immediate use for, and you won't regret losing or many nights without sleep, if a crash comes. It is still early enough, and one can learn a lot of crypto technology, which won't be going anywhere regardless of future prices.
- scribu 9y ago
  Yahoo Finance says yes, it can be safely ignored: https://finance.yahoo.com/news/bitcoin-implode-wouldnt-big-deal-224525108.html https://finance.yahoo.com/news/bitcoin-implode-wouldnt-big-d...
hknecht 9y ago
I think Bitcoin will become the principal store of crypto value. There will be other cryptos for different uses and Bitcoin will serve as a medium of exchange among them and as a long term store of value, it probably won’t become the everyday currency we all want to use. Hopefully these futures will reduce its volatility and help stabilize the price
- jacobr 9y ago
  It's not very good as a medium of exchange due to the high transaction time and costs. There is a theory that a recent bump in Litecoin prices was due to traders wanting to move Bitcoin between exchanges and Bitcoin is too slow.
  - etr-strike 9y ago
    I hate to break it to you but none of the existing cryptocurrencies know how to scale transactions yet. There are, however, many proposed solutions. Bitcoin is aggressively pursuing those solutions. The worst proposal, increasing blocksize, is not currently being considered because of its impact on centralization.
    - nscalf 9y ago
      Have you heard of bitcoin's lightning network? There is a layer they're working on that, as I've heard it, allows 1 million transactions a second for a fraction of the transaction cost. It's not VISA, but it's a huge improvement, and makes Bitcoin much more viable. They've been showcasing successful tests, but are open about it not being 100% ready. Still exciting.
      - bduerst 9y ago
        Lightning doesn't scale with users. It can handle 1 million transactions between 2 people in seconds, but 2 transactions between a million people would take weeks.
    - smaps 9y ago
Havoc 9y ago
The concept of layering futures on top of BTC is equal parts crazy and promising on the entertainment front. All we need now is someone adding leverage and hilarity shall most certainly ensue
- Erlich_Bachman 9y ago
  You can already trade cryptocurrencies with leverage on many major crypto exchanges.
  - banderman 9y ago
    Correct. All of the big unlicensed and unregulated exchanges that provide no transparency of their ownership, or as to how customer balances are held allow significant margin trading. And they have no impartial 3rd party proof of reserves.
    - Erlich_Bachman 9y ago
      Many major exchanges have financial institution licenses. It's not a banking license, but it's a license that still means a lot of regulation. (Also the history has shown that a banking license is in no way a guarantee that a bank cannot fail.)
- setecgastronomy 9y ago
  It's like speculation on top of speculation. Reminds me of the MBS/CDOs of the housing crisis. Speculative loans of speculative loans. > All we need now is someone adding leverage and hilarity shall most certainly ensue Oh, it's already starting. Believe me. Usually when you start hearing of "record setting" purchase of art, you start your clock on the next recession. I guess this could be that moment. Wouldn't be surprised if we have a recession in the next 2 or 3 years.
deleted 9y ago
[deleted]
juanmirocks 9y ago
AFAIK, the CBOE Bitcoin Futures exchange uses a specifically-built index from Gemini exchange to track the BTC price. However, I cannot find a link. Where is the link for the CBOE Bitcoin Futures index ? (Where did Bloomberg get the index data from? https://www.bloomberg.com/news/articles/2017-12-10/bitcoin-futures-trading-opens-bringing-crypto-to-wall-street https://www.bloomberg.com/news/articles/2017-12-10/bitcoin-f...)
- jpmattia 9y ago
  http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures > XBT futures are cash-settled contracts based on the Gemini's auction price for bitcoin, denominated in U.S. dollars.
joering2 9y ago
tldl (too long didnt listen) - low volume - technical glitches related to frontend as many investors, out of curiosity wanted to see how it plays out.
aaroninsf 9y ago
What a grisly circus. Everyone thinks they're going to win. No one is going to win. Get out while there is a way of doing so.
ihaveahadron 9y ago
Digital currency seems to need a lot of electrical power. I guess whoever builds a fusion power generator will end up mining trillions^999...? worth of Bitcoin.? Just create a controllable sun here on Earth, why can't you do that "scientists" you can't even do what nature has already fucking done.

199 points by rayuela 9y ago

Can’t really wrap my head around the rise of BTC in futures trading, as they are all cash settled. In other words, pure betting and gambling with the futures, as they really do not touch the underlying BTC. I guess, just a regular day in the massively manipulated crypto currency world...

module0000 9y ago
It’s about risk management. The highest volume futures contracts are cash settled as well(ES, NQ, ZB, 6E’s). Example usage 1: you may want to own BTC and de-risk before economic events by hedging <x>% short BTC contracts.
- kgwgk 9y ago
  As if there was any link between BTC and economic events...
  - tehlike 9y ago
    was this a /s? IF it's not: With the current HODL mentality, you can imagine the bitcoin price go even higher. I wish the same HODL'ers were around in 2008, things would have been much different. "Buy the dips" is the best investment strategy that became mainstream thanks to bitcoin.
    - ryanwaggoner 9y ago
      Wait, I’m sorry, are you claiming that Bitcoin HODL’ers gave us the ‘buy the dips’ strategy? :)
      - tehlike 9y ago
        No, i said they made it mainstream, to the guy who had 500$ as investment.
  - module0000 9y ago
    There is a link between all currencies with value and major economic events. FOMC minutes, FOMC rate decisions, GDP, NFP... just to name a few. Look at your BTC quotes at the timeframes those events are released to see for yourself.
camillomiller 9y ago
Crypto might even be manipulated, but in this case what’s the issue? I don’t get your logic. Some independent financial entity decides to start trading futures on horse manure. That makes horse manure a heavily manipulated underlying financial product?
- gchokov 9y ago
  Well. You will see what manipulation means when the first contracts are about the expire!
  - camillomiller 9y ago
    Mid-january then?
    - gchokov 9y ago
      yes
- IncRnd 9y ago
  > That makes horse manure a heavily manipulated underlying financial product? Yes. You will find people who use their fields of cows to pass off excrement as horse manure, injecting various gasses into the manure to pass excrement-inspections. You will also find actual owners of horses who discard half their horse manure.
sliverstorm 9y ago
Just the next step from the Bitcoin economy, to the Bitcoin Standard economy, to the eventual Bitcoin Fiat economy. Seriously, the Lightning network looks a lot like the old Gold Standard, and the arc of Bitcoin seems to be reinventing modern currency, so I'm trying to figure out what's next.
- isoprophlex 9y ago
  Fort Knox storing paper BTC wallets instead of gold?
- JanSt 9y ago
  To me, the Lightning network looks like a terrible idea. It achieves nothing that an increased blocksize would not have done on-chain yet wraps a faster-layer around the slower, deliberately crippled (1MB) blockchain and does require multi-hop liquidity that must be provided by interested parties. My understanding would be that the slower layer (like TCP) would be stacked on the faster layer (like IP). The lightning network seems all wrong to me. If the Lightning network is so great, why do we need a blockchain at all? If not, why not just increase the blocksize? It achieves nothing that couldn't be done on-chain. There have been successful tests of blocksizes of up to 1 GB or 1000x the current size. Even getting it up to a small multiple of the current size would dramatically cut transaction costs and waiting times.
  - raverbashing 9y ago
    My opinion exactly It's not a "terrible idea" it is what should have existed in the first place in the oficial blockchain They're just adding a 2nd layer on top, calling it official and then saying "bitcoin is working"
    - homakov 9y ago
      It should _have_ existed, but the idea came around only about 2015? It's evolving slowly. But if it were "built-in" would be a lot better of course.
  - 9y ago
gibybo 9y ago
The markets are not as independent as they might seem. If the futures market gets ahead or behind of the other BTC markets, it creates opportunities for arbitragers to profit from the difference which has the effect of reducing the gap. It doesn't matter that they are cash-settled. For example, if lots of money start pouring into Bitcoin futures, the futures price will rise above the price on BTC exchanges. It will then be profitable to sell the futures while buying Bitcoin on the exchanges, which drives the price of Bitcoin up on the exchanges. When the future matures, you just sell the Bitcoin on the exchange and pay your cash-settlement on the future for a guaranteed profit.
- gchokov 9y ago
  Excellent explanation - thank you.
- pash 9y ago
  More precisely, it is possible to replicate the final value of a futures contract (on Bitcoin or any other asset) up front, by trading in the spot market, even though a futures contract’s payoff is uncertain until it expires. Whatever the future’s value ends up being at its expiry, you can put together in advance a portfolio of holdings that will have the same value simply by borrowing a certain amount of cash and using it to buy in the spot market a corresponding amount of the asset on which the futures contract is written; if you do this, the value of your holdings in cash (after paying interest on your borrowings) and in the asset are guaranteed exactly to equal the value of the futures contract at expiry, no matter what price the underlying asset ends up trading at then. So if there is any deviation in the value of the futures contract (at any point in its lifetime) from the aggregate value of the cash and assets in the portfolio that replicates its final value, then there is an opportunity for a pure arbitrage. Consequently trading by arbitrageurs bounds futures prices in a tight range determined by the variables that set the cost of putting together this replicating portfolio: the price of the underlying asset, the interest rate on cash and the yield on the asset (if any), the time until the maturity of the futures contract, and cost of transacting in these markets. This arbitrage relationship is about as hard they get, so trading futures is tantamount to trading the underlying asset itself, since changes in price in the futures market will be translated directly via arbitrage into changes in price in the spot market for the underlying asset, and vice versa.
emerged 9y ago
My read is that futures trading legitimizes Bitcoin, perceptually at least signaling mainstream financial adoption of Bitcoin. I'm sure that read is only one of the myriad of subjective factors involved (let's all agree that Bitcoin rises and falls in clouds of collective subjective perception), but I think it may be the dominant one.
- FireBeyond 9y ago
  I'd say the dominant factor is "the sheer number of exchanges that have varying degrees of resistance, from mild to total, of converting BTC to USD" ... Be they delays on withdrawal, explicit, or just ghosting. Be they unrealistic minimums (Bitfinex will not process such a transaction for >250BTC, $4.5M or so at today's rates). Be they whatever flavor excuse-of-the-day. Some exchanges need to learn to walk before they run.
devit 9y ago
As far as I can tell it's just a way to outsource holding the BTC. A BTC future can be perfectly hedged by taking a loan until the settlement date and using it to buy 1 BTC, holding it until settlement and then selling, so that's probably what the counterpart selling the future is doing.
- vasilipupkin 9y ago
  Not quite, since futures are marked to market every night, there is additinal cash flow relative to your scenario
- ithinkinstereo 9y ago
  As others have mentioned, contracts are marked-to-market on a daily basis, which impacts the margin needed to hold the contract. With wide price swings, this can force you to close your position before it settles in order to meet margin, especially if you're trading with leverage. CBOE also has a really high margin requirement (I think 40%+), so the capital costs to play are quite high here.
olalonde 9y ago
https://news.ycombinator.com/item?id=4693920 https://news.ycombinator.com/item?id=4693920
capex 9y ago
Or, just a regular day in the massively manipulated futures trading market...
delhanty 9y ago
Randy Mitterling, Nassim Taleb, Chris Cook appear to agree with you. [1] So maybe that's the way it is - Bitcoin futures the biggest crypto ponzi scheme yet? [1] https://twitter.com/nntaleb/status/939852491130396673 https://twitter.com/nntaleb/status/939852491130396673
hanzulrich 9y ago
It’s so weird, people are treating it like a share instead of a currency

thisisit 9y ago

Is someone able to find how the cash settlement of these futures handle forks? I can find CME's policy but nothing for CBOE: http://www.cmegroup.com/education/cme-bitcoin-futures-frequently-asked-questions.html http://www.cmegroup.com/education/cme-bitcoin-futures-freque... > 31. What is CME Group’s policy regarding hard forks? > CME is developing a hard fork policy for capturing cash market exposures in response to viable forks. The policy may involve cash adjustments to position holders or listing related futures that are also issued to position holders.

provost 9y ago
Sounds like if a fork were to happen soon (not that it will) they would have to freeze the exchange, as they don't have a plan. I've noticed Coinbase does this as well, though they email a clear explanation about each upcoming fork-freezes and their intentions for each scenario.
- where_do_i_live 9y ago
  Coinbase froze deposits/withdrawals, trading on the exchange often continues normally.

idibidiart 9y ago

Is this just legalized gambling?

sametmax 9y ago
That's pretty much what people use stock market for anyway. Most investors are no warren buffet, they bet at best on educated guesses.
- esarbe 9y ago
  You are talking about speculators. Anybody that holds an financial instrument for less than five years (my definition) is a speculator. Warren Buffet is an investor. He buys a business (he thinks) he understands and then holds on to it while it generates profit. It really bothers me that - in business terms - investors are nowadays just lumped together with speculators. Investors try to build something while speculators just try to make money, no matter the cost to anybody else.
  - Cthulhu_ 9y ago
    I'd argue that some investors - the angel / startup investors - are gamblers, they place their bets on 100 startups and bet that one of them will be the next Facebook and eventually either sell for billions, or go to the stock market itself to get billions. The more traditional investor gets a stake in a company and due to that stake gets a say in the running of the company, thus having an influence on its future and growth (or decline). Less of a gamble there, it becomes part of their own responsibility then.
  - sah2ed 9y ago
    > Investors try to build something while speculators just try to make money, no matter the cost to anybody else. Based on your definition, what would you call Carl Icahn then? I tend to agree with John Bogle's definition that both types of people are in it for the money, the only fundamental difference is the time horizon either is willing to wait to reap the returns from their investment. [0] https://en.wikipedia.org/wiki/John_C._Bogle#Investment_philosophy https://en.wikipedia.org/wiki/John_C._Bogle#Investment_philo...: The main difference between investment and speculation lies in the time horizon. Investment is concerned with capturing returns on the long-run with lower risk, while speculation is concerned with achieving returns over a short period of time. Bogle believes this is an important analysis to be taken into account as short-term, risky investments have been flooding the financial markets.

basicplus2 9y ago

So what happens when the entire earth's energy production is required to produce the next bitcoin and there is therefore no further bitcoin mining?

erdbeerkuchen 9y ago
My understanding is that if enough people stop mining the difficulty will be lowered so that the energy costs fall. Also there are transaction fees.
sametmax 9y ago
Bitcoin is limited at 21 million coins. After that, no more btc, and people will trade in btc divisions such as satoshis. But there are hundrerds of bitcoin alternatives now, some very interesting.
- Cthulhu_ 9y ago
  If there's no more miners / mining, who verifies the transactions? (iirc that's what miners did, but correct me if I'm wrong and miners only generate currency and don't verify transactions)
  - endless1234 9y ago
    They do verify transactions, and are incentivized to do so by transaction fees
    - Frogolocalypse 9y ago
      They don't verify transactions actually. That is what nodes do. They retrieve valid transactions from nodes, order them, and then hash them according to the consensus proof-of-work algorithm, which in this case, is SHA-256, until it produces a block that will satisfy the node consensus requirements.
      - pointsphere 9y ago

generalizethis 9y ago

It's ironic that wall street spent so many years saying Bitcoin is worthless, but is buying-in when it's lost its use case to competitors within cryptocurrency, and really is useless (except as a speculative vehicle or "store of value"). I guess BTC can fork infinitely, so there's that.

em3rgent0rdr 9y ago
Actually, Lightning Network will significantly increase Bitcoin's transactions per second and reduce transaction cost.
- theadamp 9y ago
  In 18 months ;)
  - generalizethis 9y ago
    "Soon"
  - Klathmon 9y ago
    To be fair, Lightning works, and it works now on the Bitcoin mainnet. The idea is sound, the code is written and somewhat tested, and it has been used in a very controlled fashion on the real bitcoin network already. At this point it's just a matter of further testing and validation that the logic is sound and there isn't anything everyone is missing, and getting vendors on board and adoption started. Still no guarantee it will happen, but it's looking more likely that it will at least make a good push, and it's no longer a vaporware promise of "in 18 months".
    - FireBeyond 9y ago
      I'm struggling to find references, so apply salt as needed, but I'm fairly sure I've read multiple references to the fact that the LN developers themselves describe it as pre-alpha and still a few years away. Which, to be clear, isn't necessarily vaporware - I think most people are in agreement that the concepts are sound, but that integration of the execution into the mainstream are quite a ways off.

LrnByTeach 9y ago

I am trying to understand risks with arbitrage for professional traders with BTC spot (at Coinbase gdax) and CBOE Futures contract. Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously" At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously. http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures you wait one month for the Futures contract to expire (Jan 17 th) , let us examine two scenarios by contract expiry Jan 17 th . case 1: Bitcoin price shoots to $25,000 case 2: Bitcoin price drops to $8,000 In both cases on the futures contract expiry date that is January 17 th 2018, bitcoin Futures price and Spot price will be almost same ( give or take $100) In both cases professional traders profit is $2000 for each futures contract on the investment of $16,700 Spot + $10,000 future initial price. That is $2000 profit on $26,700 investment for one month period , that works as 7% return per month, annualized 84% . You may need to deduct cost of money that is interest on investment or loan say 6% per year . One risk I see is, on the Short sell Futures contract, if the bitcoin is keep rising in price , trader needs to supply more money to meet the margin call ( just a technial issue because he is gaining on the LONG Buy bitcoin spot price ) Am I missing some thing ??

isolli 9y ago
Liquidity I assume. It may be difficult to sell $25,000 worth of Bitcoin at the settlement price on the settlement date. Slippage could be more than the $2,000 profit you estimated. Especially if many people do the same trade.
andruby 9y ago
(I am not a professional investor) Why is there a gap of 11% between the CBOE Future contract price and the BTC Spot price? Should they not be closer in a perfect market? Maybe the gap will be the same on the contract expiry date? Is this because the arbitragers still need to integrate the CBOE Futures into their system? Even between bitcoin exchanges, the bitcoin price varies. $17240 on cex and $16310 on bitstamp.
- LrnByTeach 9y ago

xHopen 9y ago

Buy Ethereum

etr-strike 9y ago
The Ethereum network is imploding under its own weight. Running an ethereum node has become quite expensive and requires very state of the art hardware just to keep up. There’s a reason bitcoin chose the constants it did.
- vvillena 9y ago
  What? 2GB of RAM and 15GB of decently fast storage (preferably SSD) are the only hard requirements. That's not state of the art by any means.
  - xHopen 9y ago
    They don't know what they say , but what the news tell them. I run an Ethereum node in a crappy hardware just for the network. and , as they may not know, you can run light ethereum nodes as they https://slock.it/ethereum_computer.html https://slock.it/ethereum_computer.html do. They are all focus in price , we are focus in technology and of course MOON
- pietjepuk88 9y ago
  When syncing, you can choose to either build and save the state for every block ("archive" mode), or save only the latest state ("fast" mode). The former requires quite a bit more data than the latter (currently 500 GB vs 32 GB for the Geth client) [0]. The default for most contemporary clients is "fast" mode. Note that with the "fast" mode you still have all the blocks, and with that all the information needed to recreate the state at a certain block somewhere in the past. And you can still help the network by syncing those blocks to newly spawned archive or fast nodes. It's just that requesting the state (e.g. balance) at a certain block in the past takes some computational work. Most people are not interested in that however, which is why it's the default synchronization mode. [0] https://etherscan.io/chart/chaindatasizefull https://etherscan.io/chart/chaindatasizefull vs https://etherscan.io/chart2/chaindatasizefast https://etherscan.io/chart2/chaindatasizefast

beberlei 9y ago

How can you buy those futures as a regular joe? CBOE seems to be aimed at certified traders

Arnt 9y ago
You can't, on purpose. The idea is that there are two kinds of investors: Sophisticated ones who can look out for themselves, and regular joes, who are protected against being ripped off by extra regulations and extra paperwork. Bitcoin futures aren't the kind of product for which anyone will go though those regulations and do that paperwork. Now, how do you become a sophisticated investor? First of all, have a spare million or tow. Next, fill out a quite simple form.
- Cthulhu_ 9y ago
  I can imagine bitcoin will one day become tightly regulated and only available to sophisticated traders; the network only supports 15 transactions per second, limiting who can do trades is one way to deal with it. NYSE can do about 11K a second (based on https://www.quora.com/What-is-the-average-total-number-of-trades-daily-on-nyse https://www.quora.com/What-is-the-average-total-number-of-tr...)
  - deleted 9y ago
    [deleted]
  - jstanley 9y ago
    The amount of transactions the bitcoin network can handle is totally unrelated to the amount of trades that can be performed on exchanges.
    - CoryG89 9y ago
      Correct, however, the number of transactions that can be handled does matter when it comes to moving BTC out of or between exchanges.
- gibybo 9y ago

a_imho 9y ago

How would a bitcoin crash look like? Any far reaching consequences? Can one safely ignore bitcoin and remain ignorant?

tehlike 9y ago
if you want to hedge against a significant rise, you might wanna hold an amount you are comfortable losing.
- fernandopj 9y ago
  This. And it is what I say when friends & family say it "must be a bubble" or "journal X say stay away". Investing/risking is not a binary, all or nothing bet. Just set aside some money you have not immediate use for, and you won't regret losing or many nights without sleep, if a crash comes. It is still early enough, and one can learn a lot of crypto technology, which won't be going anywhere regardless of future prices.
scribu 9y ago
Yahoo Finance says yes, it can be safely ignored: https://finance.yahoo.com/news/bitcoin-implode-wouldnt-big-deal-224525108.html https://finance.yahoo.com/news/bitcoin-implode-wouldnt-big-d...

hknecht 9y ago

I think Bitcoin will become the principal store of crypto value. There will be other cryptos for different uses and Bitcoin will serve as a medium of exchange among them and as a long term store of value, it probably won’t become the everyday currency we all want to use. Hopefully these futures will reduce its volatility and help stabilize the price

jacobr 9y ago
It's not very good as a medium of exchange due to the high transaction time and costs. There is a theory that a recent bump in Litecoin prices was due to traders wanting to move Bitcoin between exchanges and Bitcoin is too slow.
- etr-strike 9y ago
  I hate to break it to you but none of the existing cryptocurrencies know how to scale transactions yet. There are, however, many proposed solutions. Bitcoin is aggressively pursuing those solutions. The worst proposal, increasing blocksize, is not currently being considered because of its impact on centralization.
  - nscalf 9y ago
    Have you heard of bitcoin's lightning network? There is a layer they're working on that, as I've heard it, allows 1 million transactions a second for a fraction of the transaction cost. It's not VISA, but it's a huge improvement, and makes Bitcoin much more viable. They've been showcasing successful tests, but are open about it not being 100% ready. Still exciting.
    - bduerst 9y ago
      Lightning doesn't scale with users. It can handle 1 million transactions between 2 people in seconds, but 2 transactions between a million people would take weeks.
  - smaps 9y ago

Havoc 9y ago

The concept of layering futures on top of BTC is equal parts crazy and promising on the entertainment front. All we need now is someone adding leverage and hilarity shall most certainly ensue

Erlich_Bachman 9y ago
You can already trade cryptocurrencies with leverage on many major crypto exchanges.
- banderman 9y ago
  Correct. All of the big unlicensed and unregulated exchanges that provide no transparency of their ownership, or as to how customer balances are held allow significant margin trading. And they have no impartial 3rd party proof of reserves.
  - Erlich_Bachman 9y ago
    Many major exchanges have financial institution licenses. It's not a banking license, but it's a license that still means a lot of regulation. (Also the history has shown that a banking license is in no way a guarantee that a bank cannot fail.)
setecgastronomy 9y ago
It's like speculation on top of speculation. Reminds me of the MBS/CDOs of the housing crisis. Speculative loans of speculative loans. > All we need now is someone adding leverage and hilarity shall most certainly ensue Oh, it's already starting. Believe me. Usually when you start hearing of "record setting" purchase of art, you start your clock on the next recession. I guess this could be that moment. Wouldn't be surprised if we have a recession in the next 2 or 3 years.

deleted 9y ago

[deleted]

juanmirocks 9y ago

AFAIK, the CBOE Bitcoin Futures exchange uses a specifically-built index from Gemini exchange to track the BTC price. However, I cannot find a link. Where is the link for the CBOE Bitcoin Futures index ? (Where did Bloomberg get the index data from? https://www.bloomberg.com/news/articles/2017-12-10/bitcoin-futures-trading-opens-bringing-crypto-to-wall-street https://www.bloomberg.com/news/articles/2017-12-10/bitcoin-f...)

jpmattia 9y ago
http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures > XBT futures are cash-settled contracts based on the Gemini's auction price for bitcoin, denominated in U.S. dollars.

joering2 9y ago

tldl (too long didnt listen) - low volume - technical glitches related to frontend as many investors, out of curiosity wanted to see how it plays out.

aaroninsf 9y ago

What a grisly circus. Everyone thinks they're going to win. No one is going to win. Get out while there is a way of doing so.

ihaveahadron 9y ago

Digital currency seems to need a lot of electrical power. I guess whoever builds a fusion power generator will end up mining trillions^999...? worth of Bitcoin.? Just create a controllable sun here on Earth, why can't you do that "scientists" you can't even do what nature has already fucking done.