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RE: What do the introduction of Futures Products really mean for the price of Bitcoin?
@jrcornel (or anyone else) I have a question about all of this - would love it if you or someone else here can answer it for me:
My understanding is that these futures will all be settled in USD, not in BTC - meaning that no actual supply or demand will be created for BTC itself.
So in that case, how will it affect the price of Bitcoin at all? Is it just simply market manipulation by wall street in order to make a profit on their futures position?
Maybe there's something to this that I'm not understanding - looking forward to hearing from the community here.
The thought that I have is that this may allow certain Wall Street groups to open positions in the actual coins, knowing that they can hedge their risk using the futures markets, making the perceived risk in owning bitcoin less than before. I am guessing that there are some investment groups that haven't gone into bitcoin because of the perceived risk, if this eliminates even a portion of that risk they may enter the crypto space.
I think the whole thing is pretty scary actually. I see futures market as the introduction of reason and technical analysis that is going to wipe a ton of the last couple weeks gains right of the table. There is as much incentive in that market to crash the price as there is to see it rise. On the positive note is that it will eventually bring stability and start crushing out the volatility.
https://www.ft.com/content/5ee5fda2-daa7-11e7-a039-c64b1c09b482
https://www.coindesk.com/bitcoin-futures-make-way-new-kind-whale/
https://steemit.com/steemit/@pawsdog/steemit-quest-for-one-million-time-required-to-build-a-usd1-000-000-00-steemit-account
This is a really good point - I didn't consider that it would allow wall street to hedge their BTC bets which they couldn't do before - thank you!
The articles always say that wall street doesn't want to worry about holding the underlying asset but that may not really be true.
Exactly. Anyone that wants to play arbitrage between the markets will be able to do so as well, and in most cases they will have to own the underlying asset, even if just for a short amount of time.
Yeah, but appart from the psychological effect, are there really buys/sells of BTC happening ? That is also my question.
There potentially could be...could minimize the risk of buying bitcoin for some of these funds. Allowing them entry points that they are comfortable with. If you are asking if the buys/sells of actual btc will take place in the futures markets, that is a no, the futures markets will be cash settled.
I think the futures contacts will be in USD but if it is a promise to pay x amount in the future, wouldn’t you then have to buy the underlying asset to deliver at that price, thereby actually creating demand for bitcoin? I should read more and report back if I find it is something different.
You're right about how ETFs work, but that's not how futures or options contracts work. Since the futures will be settled in cash then at no point will actual BTC be involved at all.
A good analogy is if we make a bet. You bet me $100 that Bitcoin will be $20,000+ by the end of 2018. Then if it is you get $100 and if it isn't I get $100. At no point was any actual BTC bought or sold as part of our bet.
This is how I understand these futures contracts will work, so unless I went and somehow otherwise affected the BTC market to keep the price under $20k so i could win the bet the price of BTC shouldn't be affected by our bet at all.
Looks like you edited this comment which makes my reply below make no sense! Anyway I don't believe the underlying asset ever needs to be bought - you can just pay the difference in price in USD. That's what it means by the contracts will be settled in cash.
That's right. Margin calls are settled based on the closing physicals price (CBOE is basis Gemini and CME is based on index. Big moves on the physicals price will affect the margin levels required to maintain positions.
I wonder too... How is this stuff really linked to BTC market, I mean with the blockchain itself ..?
I am wondering that myself actually. I haven't been able to find whether they are all cash settled or not. Like you mentioned, if they are, and only based on market prices of bitcoin, the ability to manipulate wouldn't be as great.
In this Business Insider article it says:
So unless actual Bitcoin trading starts to follow the futures market (maybe because people think that's where the "smart money" is) I don't see how this will have any bearing on the actual price of BTC.
I agree if the hodlers continue to hodl. Issue many would raise are the new market entrants that may not be accustomed to a 100 vol product and bail out on the first 2000 point move in the physical, compounded by Coinbase's "technical issues" that invariably arise during such moves.
I have a doubt what if US government stops all crypto exchanges? Then our coin will still be safe?
If anything the introduction of a futures product further legitimizes the asset class with the regulators, both CFTC and SEC .. because I agree that drastic action against the exchanges will render chaos on the futures markets.
That's why it is not advised to leave all your money on such exchanges : they can shutdown for whatever reason. And you wouldn't be able to do much if this happens.
Both futures products will be cash settled, basis the physical spot exchanges (Gemini for CBOE, and an index for CME). Somewhat ironic given that a BTC is probably the easiest of any product to deliver. Would you rather receive a freight train full of live hogs or a block of bitcoins delivered to your address ? !!