Why the CME (Chicago Mercantile Exchange) offering Bitcoin futures will push the price upsteemCreated with Sketch.

in bitcoin •  last year

I will be arguing against two points I hear a lot lately.

  1. CME will be offering future contracts not actually trading coins so the price will be unaffected.

  2. This will open the door to lots of shorters maybe even more than buyers.


source

Future contracts and their effect on prices

For point 2 I will be giving an opinion that may or may not be correct but for point 1 I can say that this futures contract WILL affect the price.

If buying pressure on the future contract pushes the price of the futures up this will led to the spot increasing via the process of arbitrage. If the price on futures is 5% above spot someone with access to both the spot and futures market can buy spot and short futures.

This will always bring the spot and futures within x%, where x is the cost of doing those deals, this may get high as people factor in the risk cost of using a low regulated spot exchange.

So while the price on spot and futures may not match, movements in one will move the other.

Why there won't be a lot of shorters

So the narrative is that there's a lot of traders in the CME and on Wall Street that are just dying for a chance to short Bitcoin.

To try and disprove this I am going to look at 3 possible traders. Traders that

  1. believe Bitcoin many have a bright future

  2. don't care about Bitcoin either way

  3. believe bitcoin is a scam / has no value etc

First the easy one, number 2, they will not trade and not affect anything.

Number 1 will buy bitcoin when they think bitcoin is undervalued and short if the think it is overvalued. I should say here, that while I think this futures offering will be positive for the price in general it could lead to a fall in price if Bitcoin has run up too much pre launch, I will leave it up to you whether you think it has or hasn't at that time.

In this group there will be quite a large number of traders that have not been willing to trade on the current lightly regulated exchanges, therefore I believe it will lead to a large intake of 'new money' and thereby be a tailwind for the price of bitcoin in the medium to long term, and maybe the short term depending on the market at that time.

Now the interesting one, number 3, or as I'll call it, the Jamie Dimon group. Dimon the CEO of JPMorgan called Bitcoin a fraud in September.

While in most crypto spaces he is derided for this, he is a very highly respected banker and his opinion is taken quite seriously, as it should be, he is one of the best at what he does.

So we can expect there are many traders that share his opinion. So why am I not worried about these shorting the market to nothing? Here's another quote from Dimon

it [bitcoin] can trade at $100,000 before it trades to zero. Tulip bulbs traded for $75,000 or something like that.

No trader that believes bitcoin is in a bubble will short bitcoin the risk is too high, even on no leverage a trader would lose everything with just a 100% price rise.

OP-ED

My opinion on the price is that I think the price will fall >30% in the next month before the CME begins trading (assuming they get the regulatory OK) and then rise when it goes live.

I think this will be a perfectly normal fall due to the huge increases lately, but of course it may not fall until hitting $10,000 or higher. So I will not be shorting, but I have taken a majority off the table and will buy back in later, whether my re entry will be a pull back to $5,000 or a pull back to $15,000 only time will tell

Disclaimer

Please do not invest on the advice of a stranger on the internet, only use this advice here as a starting point for your own research, and then if you choose to invest please only invest an amount that you can afford to lose.

Sources

http://www.cmegroup.com/media-room/press-releases/2017/10/31/cme_group_announceslaunchofbitcoinfutures.html/

http://fortune.com/2017/09/12/jamie-dimon-bitcoin-cryptocurrency-fraud-buy/

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Some excellent points made.

I think one of the most basic points is that, depending upon the derivative, there is someone on the opposite side of the trade. So to trade against an asset with an option, as an example, someone on the other side needs to asset to put the option out there. I know futures are a bit different but are options on bitcoin really that far away. We know Wall Street, once they start down the derivative rabbit hole, they keep going.

We need them to start creating steem deirvatives. :)

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read the release from the CME and could see if the futures would be matched by other traders or the exchange, shouldn't matter much either way expect a trader is more likely to overextend.

I hadn't considered options, but that would allow someone to limit their risk and short with less risk, but I bet those options will be price as someone needs to take that risk.

Calling @originalworks :)
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The @OriginalWorks bot has determined this post by @fiveboringgames to be original material and upvoted(1.5%) it!

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Upvoted. I'll be resteeming this now :)

its price is already going too much up

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yea I agree I think a correction will be coming soon, but as I said that may be now or after price goes to $10,000

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i guess the correction is already here now

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the past 4 corrections were 30%-40% so looking for 5500 -4500 for a bot. 5000 probably a good spot for some buys, but I am concerned it may go as low as 3000