Bitcoin Derivatives...
Welcome to my corner -- Controversial opinions about Bitcoin and other unbacked digital tokens.
So today I stumbled across this article talking about futures trading opening up in Indonesia.
As reported by kontan.co.id, cryptocurrencies will now be subject to trading on futures exchanges. This trading allows investors to bet for or against crypto prices by lending coins with agreed contracts to buy them back at specific prices.
And while this is great for increasing adoption of cryptocurrency, it got me thinking about Bitcoin Futures and Bitcoin Derivatives. After all, centralized exchanges are able to operate by conducting their Bitcoin transactions on their own system instead of the blockchain, and only retracts the Bitcoin once a user withdraws.
This allows things to work the way they are, but it's also just like how central banks operate: Fractional reserve lending. You can use and exchange the exchange's false bitcoin and make money on Bitcoin without owning the real coins thanks to the Futures system.
"Atherz! Stop trying to hold us back from the future!"
Well, we all agree that fractional reserve lending is a financial sin -- it allows way more money to circulate than there actually is money. On top of this, decentralized exchanges like Bitshares supports "BitBTC", a derivative of Bitcoin and they allow it to be used as Bitcoin in their system.
So do these futures and derivative systems dilute the supply of real BTC? Yes!
Should I not involve myself in futures and derivative systems? It depends! You may be able to make money through this system, but if we had some sort of "crypto bank run" and you're sitting on fake BTC, those exchanges you're on will probably shut you out of the actual funds.
Tread lightly, my friends...
P.S. Deutsche Bank is in trouble, losing their stock share and employees. They hold the highest amount of derivatives in the world, and derivatives themselves distort the prices of their underlying asset by huge amounts. It's why silver is still under $17 and why Bitcoin's value is diluted as well. If they collapse, it would be like removing all of the rock from the core of our planet and expecting the air to fill up the remaining space -- catastrophic.