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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

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.

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.