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What is this guy talking about (from the article): For example, they could sell a promise to deliver a bitcoin in a month’s time at a lower price than the curr

by Moral_ 8y ago

What is this guy talking about (from the article): For example, they could sell a promise to deliver a bitcoin in a month’s time at a lower price than the current spot price and hope to buy a bitcoin during the month at an even lower price to make a profit. All BTC futures contracts are cash settled, there is no underlying asset being exchanged.

jonknee 8y ago
It could be more clear, but the strategy is the same. Sell a contract now and hope to buy it back cheaper in the future. It doesn't matter too much how it's settled.
- tcbawo 8y ago
  The problem is that margin requirements are extremely high. So people are unlikely to tie up that much capital. But more appropriately the market can stay irrational longer than you can stay solvent.
  - jonknee 8y ago
    High margin might tamp demand for the Coinbase crowd, but I don't think it matters a ton to the big players who wanted to be able to short BTC. The futures market isn't a place most retail investors should be anyway.
    - tcbawo 8y ago
      The big players will put their money where they get the best return. They're not going to leave much money sitting in a margin account long term -- the potential relative gain is too a small.
- JackFr 8y ago
  > It doesn't matter too much how it's settled. It matters very much how it is settled. Right now BTC drives the price of the future, but there isn't a mechanism for the price of the future to pressure the price of BTC.
  - jonknee 8y ago
    You don't have to play in arena one or the other. You can say, hedge a long BTC position by selling futures contracts. Or if the markets get out of balance you can buy in one and sell in the other until they come into sync. If you sell a bunch of over priced futures you will want to buy a bunch of BTC to balance the book and that will move the price of BTC.
    - JackFr 8y ago
      But if I have an unhedged futures position and I don’t buy or sell BTC — and because it’s cash settled, I never have to — I can’t directly affect the price of BTC.
      - jonknee 8y ago
        You're buying or selling the future position with another party and cannot control what they are doing. Most futures are cash settled and they affect markets all the same. Nearly $200b worth of S&P 500 E-Mini contracts traded today and not a single share of stock will be directly involved in those contracts. But you better believe they move the market (just watch what happens when a monster ES order hits the tape).
empath75 8y ago
If you want exposure to bitcoin prices without having the risk of leaving bitcoins on an exchange (or gasp, holding them yourself), then futures are an alternative. If people are buying exposure through futures instead of buying bitcoins, that's going to reduce demand and the price.

by Moral_ 8y ago

jonknee 8y ago

It could be more clear, but the strategy is the same. Sell a contract now and hope to buy it back cheaper in the future. It doesn't matter too much how it's settled.

tcbawo 8y ago
The problem is that margin requirements are extremely high. So people are unlikely to tie up that much capital. But more appropriately the market can stay irrational longer than you can stay solvent.
- jonknee 8y ago
  High margin might tamp demand for the Coinbase crowd, but I don't think it matters a ton to the big players who wanted to be able to short BTC. The futures market isn't a place most retail investors should be anyway.
  - tcbawo 8y ago
    The big players will put their money where they get the best return. They're not going to leave much money sitting in a margin account long term -- the potential relative gain is too a small.
JackFr 8y ago
> It doesn't matter too much how it's settled. It matters very much how it is settled. Right now BTC drives the price of the future, but there isn't a mechanism for the price of the future to pressure the price of BTC.
- jonknee 8y ago
  You don't have to play in arena one or the other. You can say, hedge a long BTC position by selling futures contracts. Or if the markets get out of balance you can buy in one and sell in the other until they come into sync. If you sell a bunch of over priced futures you will want to buy a bunch of BTC to balance the book and that will move the price of BTC.
  - JackFr 8y ago
    But if I have an unhedged futures position and I don’t buy or sell BTC — and because it’s cash settled, I never have to — I can’t directly affect the price of BTC.
    - jonknee 8y ago
      You're buying or selling the future position with another party and cannot control what they are doing. Most futures are cash settled and they affect markets all the same. Nearly $200b worth of S&P 500 E-Mini contracts traded today and not a single share of stock will be directly involved in those contracts. But you better believe they move the market (just watch what happens when a monster ES order hits the tape).

empath75 8y ago

If you want exposure to bitcoin prices without having the risk of leaving bitcoins on an exchange (or gasp, holding them yourself), then futures are an alternative. If people are buying exposure through futures instead of buying bitcoins, that's going to reduce demand and the price.