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I get it but why allow for exotic derivatives and not the spot? It seems like you’d disallow derivative products until the spot was properly handled. (Custody c

I get it but why allow for exotic derivatives and not the spot? It seems like you’d disallow derivative products until the spot was properly handled. (Custody concerns etc).

mattficke 4y ago
Bitcoin futures are cash settled so there aren’t the same custody issues, there’s no delivery of the underlying involved.
- social_quotient 4y ago
  Is the future not likely to be impacted the same way if the asset if manipulated? Several of the other comments on this thread mention that the future appears to be less likely to be manipulated. Intuitively I’d think they are wildly similar, or correlated, but I’m sure I don’t know enough here to understand why I’m wrong.
  - Galanwe 4y ago
    > Intuitively I’d think they are wildly similar, or correlated The thing is that if you are willing to bet on the price movement of a token, futures are a much more cost and capital efficient way to do so. - Its more capital efficient because you can leverage futures. Say you want an exposure of $1000 on the price of BTC and only have access to a spot market. You would need to actually buy $1000 worth of BTC, or use margin (a loan basically, but the interests are prohibitive). With futures, you would just need to maintain the required margin amount depending on your preferred leverage, so you could get that $1000 BTC exposure with a post of $100. For the same exposure of $1000, futures allows you to use less capital, or conversely with the same capital, you can have more exposure with futures. - Trading fees are much lower on futures, since this is mainly a virtual, exchange-owned instrument. There is often no actual movement of the underlying when trading futures, especially if everything is settled in cash. Futures trading fees are often significantly lower than spot. These advantages of futures often lead them to have _much_ more liquidity than the actual spot market, which in turn means they are much more stable. What we see often on small marketcap coins is that the ownership of tokens is opaque. Regularly, some whales (sometimes even unknowingly) dump huge amounts of the coin on the spot market, which leads to flash crashes until market makers can provide back some liquidity. This is very unlikely to happen on futures, since the liquidity is so much higher, dumping some millions worth in the market wouldn't dry out the book all that dramatically. I did not check numbers recently, but just to give you a rough idea, the daily traded amount on uniswap (spot, decentralized) should be around $1B/day, Binance spot should be around $10B/day, and Binance perpetual futures around $40B/day.
Galanwe 4y ago
A future is not an "exotic" derivative, it's a "vanilla" product. Futures are mainly OK because there is no custody nor settlement of the underlying itself. Everything is settled in cash. In this respect, cash settled (inverse) crypto futures could almost be considered as having no link whatshowever with crypto currencies. This fine point is actually what allowed brokers to propose crypto futures ahead of any regulation.
- steveBK123 4y ago
  Exactly, futures are essentially the most vanilla and ancient derivative product in the world. Hammurabi's Code references them as does Aristotle. The earliest uses have been primarily agricultural, allowing farmers to sell grain in advance for cash now and use that cash to fund operations in order to grow the grain.
steveBK123 4y ago
Bitcoin futures trade on the CME, a well known and well regulated US-based exchange. They are cash settled so no bitcoin custody issues. The spot index price source the futures trade in reference to is a well documented methodology sourcing from multiple bitcoin exchange sources. https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... By comparison, with Grayscale, who knows how custody works and what exchange exposure they may have.
quickthrowman 4y ago
Exchange traded futures are not exotic derivatives, you can trade /BTC on a phone app with ~$30-50,000 of margin, depending on your broker. CME Bitcoin futures are cash settled, it doesn’t settle in actual BTC.

I get it but why allow for exotic derivatives and not the spot? It seems like you’d disallow derivative products until the spot was properly handled. (Custody concerns etc).

mattficke 4y ago

Bitcoin futures are cash settled so there aren’t the same custody issues, there’s no delivery of the underlying involved.

social_quotient 4y ago
Is the future not likely to be impacted the same way if the asset if manipulated? Several of the other comments on this thread mention that the future appears to be less likely to be manipulated. Intuitively I’d think they are wildly similar, or correlated, but I’m sure I don’t know enough here to understand why I’m wrong.
- Galanwe 4y ago
  > Intuitively I’d think they are wildly similar, or correlated The thing is that if you are willing to bet on the price movement of a token, futures are a much more cost and capital efficient way to do so. - Its more capital efficient because you can leverage futures. Say you want an exposure of $1000 on the price of BTC and only have access to a spot market. You would need to actually buy $1000 worth of BTC, or use margin (a loan basically, but the interests are prohibitive). With futures, you would just need to maintain the required margin amount depending on your preferred leverage, so you could get that $1000 BTC exposure with a post of $100. For the same exposure of $1000, futures allows you to use less capital, or conversely with the same capital, you can have more exposure with futures. - Trading fees are much lower on futures, since this is mainly a virtual, exchange-owned instrument. There is often no actual movement of the underlying when trading futures, especially if everything is settled in cash. Futures trading fees are often significantly lower than spot. These advantages of futures often lead them to have _much_ more liquidity than the actual spot market, which in turn means they are much more stable. What we see often on small marketcap coins is that the ownership of tokens is opaque. Regularly, some whales (sometimes even unknowingly) dump huge amounts of the coin on the spot market, which leads to flash crashes until market makers can provide back some liquidity. This is very unlikely to happen on futures, since the liquidity is so much higher, dumping some millions worth in the market wouldn't dry out the book all that dramatically. I did not check numbers recently, but just to give you a rough idea, the daily traded amount on uniswap (spot, decentralized) should be around $1B/day, Binance spot should be around $10B/day, and Binance perpetual futures around $40B/day.

Galanwe 4y ago

A future is not an "exotic" derivative, it's a "vanilla" product. Futures are mainly OK because there is no custody nor settlement of the underlying itself. Everything is settled in cash. In this respect, cash settled (inverse) crypto futures could almost be considered as having no link whatshowever with crypto currencies. This fine point is actually what allowed brokers to propose crypto futures ahead of any regulation.

steveBK123 4y ago
Exactly, futures are essentially the most vanilla and ancient derivative product in the world. Hammurabi's Code references them as does Aristotle. The earliest uses have been primarily agricultural, allowing farmers to sell grain in advance for cash now and use that cash to fund operations in order to grow the grain.

steveBK123 4y ago

Bitcoin futures trade on the CME, a well known and well regulated US-based exchange. They are cash settled so no bitcoin custody issues. The spot index price source the futures trade in reference to is a well documented methodology sourcing from multiple bitcoin exchange sources. https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cryptocurrency-benchmarks.html?redirect=/trading/cryptocurrency-indices/cf-bitcoin-reference-rate.html https://www.cmegroup.com/markets/cryptocurrencies/cme-cf-cry... By comparison, with Grayscale, who knows how custody works and what exchange exposure they may have.

quickthrowman 4y ago

Exchange traded futures are not exotic derivatives, you can trade /BTC on a phone app with ~$30-50,000 of margin, depending on your broker. CME Bitcoin futures are cash settled, it doesn’t settle in actual BTC.