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If you look back at the LTCM collapse it should be obvious that it is impossible to make anything risk free, no matter how clever you are. Your other question
by smackeyacky 5y ago
If you look back at the LTCM collapse it should be obvious that it is impossible to make anything risk free, no matter how clever you are.
Your other question is a good one. Nobody knew that the collapse of LTCM would cause a market wide collapse at the time, so the question is how big are the hedging risks that financial firms dabbling in Bitcoin will be multiplied by the collapse of tether.
That is, if it is being used as a hedge, what kinds of financial instruments have the quants cooked up based on tether, then how much worst case exposure are we talking about? It might be nothing, but who knows until the tide goes out.
- dalbasal 5y agoIn this case though, people own tether... not an investment in a hedge fund. Hedge funds returns a supposed to have risk. With a stablecoin, someone is promising to buy an unlimited number of coins for a set price. If the market says USDT = $0.95, and that someone's market activities fail to achieve USDT = $1... something gives fast.
- smackeyacky 5y agoThe scenario that scares me is somebody dabbling in an instrument like a CDO where the bitcoin hedge is tether rather than bitcoins. I don't know whether anybody has been stupid enough to confect something like that with these dodgy products but it seems almost inevitable somebody will try.
- quickthrowman 5y agoYour post doesn’t make any sense. How on earth would you hedge a Bitcoin position with tether? This is like saying you’re going to hedge your SPY position with dollars. Also, a CDO is a variety of debt packaged into a single instrument that pays out cash flows to tranches, some of which are paid before others.
- smackeyacky 5y agoTether has been suspected of being used to manipulate the price of bitcoin, so its fair to assume you could make a financial instrument that mirrored that activity and use it as a hedge. I don't know if its possible to short bitcoin via a reputable dealer, but its possible to construct a CDO out of anything that can be borrowed. Edit: holy mother of meltdowns you can short bitcoin.
- quickthrowman 5y agoDo you understand what hedging is or how to hedge a position? Please explain to me how you would hedge a 50 BTC position with tether... I’ll save you some trouble and point out that it’s impossible. You can hedge bitcoins with Bitcoin options or perpetual swaps/futures, it’s impossible to hedge Bitcoin with tether, full stop.
- smackeyacky 5y agoYou can hedge anything with anything where you perceive a relationship. It doesn't have to be formally linked or related in any way.
- quickthrowman 5y agoPlease explain how you hedge BTC against tether, which is supposed to maintain a $1 peg. There is no correlation between BTC and tether, how can you not see that?? Bitcoin goes up and down, tether stays at a buck, plus or minus a tiny fraction at times. You cannot hedge Bitcoin with tether!! At this point, I’m going to assume you have a fundamental misunderstanding somewhere, I won’t be responding any more. If you want to believe you can hedge a volatile crypto coin with a pegged stable coin, I could care less, just don’t spread that nonsense here.