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Sorry but this is simply not true. Derivatives markets can be/is used to hedge risk on the spot market (or take leveraged directional positions). The developmen

by verroq 7y ago

Sorry but this is simply not true. Derivatives markets can be/is used to hedge risk on the spot market (or take leveraged directional positions). The development of derivatives markets is a natural complement to the spot market, with derivatives markets usually providing a order of magnitude of liquidity compared to spot. If anything, having a liquid derivatives market increases the amount of capital required to manipulate the spot market. >This type of gambling is already risky on liquid, highly regulated markets. Risk is always balanced with return. No one is forcing you to trade nor is there any systemic risk. People who take the risk know what they are getting into. >But doing it on heavily manipulated markets that are currently being propped up by billions of fake dollars is just baffling. Didn’t realise you were talking about SPX ;)

earthtolazlo 7y ago
I don’t see how that matters when cryptocurrency exchanges are able to print money and liquidate leveraged positions at will (Bitfinex/Binance/Bitmex + Tether). Couple that with miner fees of over 10 million dollars worth of cryptocurrency every day and the market feels like a giant black hole for any fiat going in.
- verroq 7y ago
  >I don’t see how that matters when cryptocurrency exchanges are able to print money and liquidate leveraged positions at will (Bitfinex/Binance/Bitmex + Tether) If you start with a position as ridiculous as this then any further dialogue is futile. Goodbye.
  - dang 7y ago
    Hey, come on. We don't want to ban you, but if you post like this what choice will we have? Every guideline we have points in the opposite direction: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
  - earthtolazlo 7y ago
    Can you explain where I’m going wrong? The evidence of Tether not being backed 1:1 is pretty overwhelming by now and Bitfinex has printed nearly two billion new ones since the start of April.
    - wickoff 7y ago
      Honestly the reply you got was sort of justified. I find that when HN discusses crypto almost nobody has any idea what they are talking about. >The NYAG, in its original injunction, said they did not want to prevent Bitfinex or Tether from continuing operations, but did move to prevent Tether from lending any further funds to Bitfinex, a move Bitfinex opposed. I am not sure what evidence you are talking about, but if NYAG is satisfied then I am too. Also in the grand scheme of things Tether is irrelevant. There are bunch of stablecoins available these days. What is your complaint against binance? They are solvent, they don't liquidate people because they don't have margin trading enabled yet, they are opening a regulated US exchange in September. When they got hacked they've covered the loss themselves despite being unregulated. Of course Bitmex automatically liquidates people, what other option do they have? Collect KYC info and hire an of army of international debt collectors? You know your liquidation price before you open a position. If your position gets anywhere near it's because you are being an overleveraged gambler rather than a disciplined trader. It's 100% your fault. I've heard more complaints about Coinbase or Kraken not processing fiat withdrawals for months at a time, than I've heard about Binance or Bitmex doing anything wrong.
      - earthtolazlo 7y ago
        Nearly all trading volume occurs in Tether, compared to dollars or other stablecoins. Tether by their own admission says that they're only 74% backed by "cash and cash equivalents." https://www.bloomberg.com/news/articles/2019-04-30/tether-says-stablecoin-is-only-backed-74-by-cash-securities https://www.bloomberg.com/news/articles/2019-04-30/tether-sa... I'm assuming that "cash equivalents" refers to Bitcoin and other cryptocurrency that would crater the market if actually sold for fiat. Not to mention this was before nearly two billion tethers were dropped on the market. I have a hard time believing that institutional investors sent billions of dollars to an unregulated and unaudited institution that used this guy to move around its money: https://www.bloomberg.com/news/articles/2019-05-03/ex-nfl-owner-is-said-to-have-ties-to-850-million-crypto-mystery https://www.bloomberg.com/news/articles/2019-05-03/ex-nfl-ow... When Tether/Bitfinex blow up (either by indictment or by finally just running out of greater fools' money), so will the rest of the cryptocurrency market, particularly Tether-based exchanges like Binance. Mt Gox will look tiny by comparison.
  - streb-lo 7y ago
    Why are you saying goodbye to someone on a public forum. Hint: don't reply.
- cwkoss 7y ago
  I trust Bitfinex a hell of a lot less than national govts, but if you look at central bank balance sheet data, they are doing essentially the same thing.
jboggan 7y ago
After building a derivatives trading platform for Bitcoin and attempting to get it off the ground, I can categorically say that no one is interested in hedging their risk, not even payment processors.
- gruez 7y ago
  >not even payment processors. what do they need to hedge? don't they immediately sell the coins after receiving them?
  - jboggan 7y ago
    Think about the amount of price fluctuation that can occur before you get a few confirmations in, especially during this last bout of speculation. I met with one payment processor and told them that based on their rough transaction figures and the previous day's price action, I knew that they lost the equivalent of a software engineer's yearly salary because of falling prices. Wouldn't they like to hedge some of that risk off and be able to hire more people? But no, not really - most of the payment processors or businesses using Bitcoin could make more money by just sitting and holding their Bitcoin and going through the motions of running a business. The potential price increase dwarfs any normal economic activity, so they had no reason to hedge away risk.
    - gruez 7y ago
      >Think about the amount of price fluctuation that can occur before you get a few confirmations in >[...] based on their rough transaction figures and the previous day's price action, I knew that they lost the equivalent of a software engineer's yearly salary because of falling prices. Can't this issue be solved by keeping a bunch of coins in reserve? That way you can convert to fiat immediately rather than waiting for 6 confirmations. This doesn't solve the issue of the payment processor essentially giving the buyer a free 15 minute put option[1], but I don't see how derivatives can solve this issue. [1] you pay for an invoice worth $1000. the payment processor gives you a quote for x bitcoins, valid for 15 minutes. this is essentially a 15 minute put option because if the price goes down, the higher price is locked in. But if it goes up, you can create another invoice to get a better price.

by verroq 7y ago

earthtolazlo 7y ago

I don’t see how that matters when cryptocurrency exchanges are able to print money and liquidate leveraged positions at will (Bitfinex/Binance/Bitmex + Tether). Couple that with miner fees of over 10 million dollars worth of cryptocurrency every day and the market feels like a giant black hole for any fiat going in.

verroq 7y ago
>I don’t see how that matters when cryptocurrency exchanges are able to print money and liquidate leveraged positions at will (Bitfinex/Binance/Bitmex + Tether) If you start with a position as ridiculous as this then any further dialogue is futile. Goodbye.
- dang 7y ago
  Hey, come on. We don't want to ban you, but if you post like this what choice will we have? Every guideline we have points in the opposite direction: https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html.
- earthtolazlo 7y ago
  Can you explain where I’m going wrong? The evidence of Tether not being backed 1:1 is pretty overwhelming by now and Bitfinex has printed nearly two billion new ones since the start of April.
  - wickoff 7y ago
    Honestly the reply you got was sort of justified. I find that when HN discusses crypto almost nobody has any idea what they are talking about. >The NYAG, in its original injunction, said they did not want to prevent Bitfinex or Tether from continuing operations, but did move to prevent Tether from lending any further funds to Bitfinex, a move Bitfinex opposed. I am not sure what evidence you are talking about, but if NYAG is satisfied then I am too. Also in the grand scheme of things Tether is irrelevant. There are bunch of stablecoins available these days. What is your complaint against binance? They are solvent, they don't liquidate people because they don't have margin trading enabled yet, they are opening a regulated US exchange in September. When they got hacked they've covered the loss themselves despite being unregulated. Of course Bitmex automatically liquidates people, what other option do they have? Collect KYC info and hire an of army of international debt collectors? You know your liquidation price before you open a position. If your position gets anywhere near it's because you are being an overleveraged gambler rather than a disciplined trader. It's 100% your fault. I've heard more complaints about Coinbase or Kraken not processing fiat withdrawals for months at a time, than I've heard about Binance or Bitmex doing anything wrong.
    - earthtolazlo 7y ago
      Nearly all trading volume occurs in Tether, compared to dollars or other stablecoins. Tether by their own admission says that they're only 74% backed by "cash and cash equivalents." https://www.bloomberg.com/news/articles/2019-04-30/tether-says-stablecoin-is-only-backed-74-by-cash-securities https://www.bloomberg.com/news/articles/2019-04-30/tether-sa... I'm assuming that "cash equivalents" refers to Bitcoin and other cryptocurrency that would crater the market if actually sold for fiat. Not to mention this was before nearly two billion tethers were dropped on the market. I have a hard time believing that institutional investors sent billions of dollars to an unregulated and unaudited institution that used this guy to move around its money: https://www.bloomberg.com/news/articles/2019-05-03/ex-nfl-owner-is-said-to-have-ties-to-850-million-crypto-mystery https://www.bloomberg.com/news/articles/2019-05-03/ex-nfl-ow... When Tether/Bitfinex blow up (either by indictment or by finally just running out of greater fools' money), so will the rest of the cryptocurrency market, particularly Tether-based exchanges like Binance. Mt Gox will look tiny by comparison.
- streb-lo 7y ago
  Why are you saying goodbye to someone on a public forum. Hint: don't reply.
cwkoss 7y ago
I trust Bitfinex a hell of a lot less than national govts, but if you look at central bank balance sheet data, they are doing essentially the same thing.

jboggan 7y ago

After building a derivatives trading platform for Bitcoin and attempting to get it off the ground, I can categorically say that no one is interested in hedging their risk, not even payment processors.

gruez 7y ago
>not even payment processors. what do they need to hedge? don't they immediately sell the coins after receiving them?
- jboggan 7y ago
  Think about the amount of price fluctuation that can occur before you get a few confirmations in, especially during this last bout of speculation. I met with one payment processor and told them that based on their rough transaction figures and the previous day's price action, I knew that they lost the equivalent of a software engineer's yearly salary because of falling prices. Wouldn't they like to hedge some of that risk off and be able to hire more people? But no, not really - most of the payment processors or businesses using Bitcoin could make more money by just sitting and holding their Bitcoin and going through the motions of running a business. The potential price increase dwarfs any normal economic activity, so they had no reason to hedge away risk.
  - gruez 7y ago
    >Think about the amount of price fluctuation that can occur before you get a few confirmations in >[...] based on their rough transaction figures and the previous day's price action, I knew that they lost the equivalent of a software engineer's yearly salary because of falling prices. Can't this issue be solved by keeping a bunch of coins in reserve? That way you can convert to fiat immediately rather than waiting for 6 confirmations. This doesn't solve the issue of the payment processor essentially giving the buyer a free 15 minute put option[1], but I don't see how derivatives can solve this issue. [1] you pay for an invoice worth $1000. the payment processor gives you a quote for x bitcoins, valid for 15 minutes. this is essentially a 15 minute put option because if the price goes down, the higher price is locked in. But if it goes up, you can create another invoice to get a better price.