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Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

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Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#91

Post by tlrobinson »

osrec wrote: post #86
osrec wrote: post #82

Earlier quoted context omitted.

Clearing is all about novation. This basically means that the buyer and seller don't see each other as counterparties, but only see Goldman as the "middle-man" counterparty. It's a method of reducing counterparty risk, as both parties end up transacting with a credible institution, rather than directly with each other. This also means that the central clearing counterparty takes on counterparty risk, and that's prett…

As a footnote, I'm not sure how Goldman are going to novate the transactions - as in, will they actually issue 2 transactions on the blockchain?! I don't see a real need for that, given that the blockchain protects against such risks to a large extent. Maybe their definition of clearing for bitcoin is different to that for standard derivatives, in which case they will probably just help their non techy clients (i.e.…

I believed the futures are “cash settled”, basically betting on the price of Bitcoin on other exchanges, not real Bitcoins.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#92

Post by jpmattia »

bogomipz wrote: post #10

>"The decision to clear client trades will be made on a case-by-case basis, the person said." Could someone say what "clearing the trades" mean here?

I think there is something of term-of-art here.

"Clearing brokers" (like Goldman) vet the clients who send transactions to the exchange. If the client defaults on a trade, Goldman is likely liable to the clearing house for the default amount, so it is in their interest to clear only those clients with sufficient collateral to provide margin.

Note that a clearing broker is different from a clearing house. The clearing house serves as a back end settlement layer to an exchange, which serves as a front-end matching engine.

https://www.investopedia.com/terms/c/clearingbroker.asp

Edit: There must be a bona fide finance guy here on HN to answer this knowledgably?

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#93

Post by jpmattia »

curiousgal wrote: post #8

I have been trading crypto for 5 years now and it is a wet dream for rogue traders. There was a myriad of stories about traders and even banks that tried to pull of some shady statretgy in the stocks markets that the SEC shut down, those same strategies seem to be fair game in the crypto world, you just have to have pockets that are deep enough. My point is that if you are smart and think you can beat or even keep up…

> There was a myriad of stories about traders and even banks that tried to pull of some shady statretgy in the stocks markets that the SEC shut down

OK, let's hear a few of the stories. Or at least a few links.

(And I promise my pockets aren't deep enough to execute on them.)

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#94

Post by partiallypro »

tlrobinson wrote: post #90
partiallypro wrote: post #87

Earlier quoted context omitted.

Another question (this is just my ignorance) but...if BTC has a fork, does that mean that the new fork has a new entire supply? I thought the "value" in BTC is that there is a limited supply and it can't be degraded like a fiat currency. If you can just keep forking...how is that not immeasurably increasing supply just like the ECB and Fed do?

No, the forked coins and the original coins aren’t fungible. It’s more like me saying “show me your dollar bills at the time of the fork and I’ll give you an equivalent amount of Monopoly money”. It’s not going to be worth anything unless you somehow convince a bunch of other people it’s worth something, and even then it’s likely going to be worth far less than the original coins because fewer people will accept it a…

I'm not saying they'd be 1-to-1 off the bat. I'm asking do forks have their own supply, and are no longer limited by the supply of the previous coin? If so, my question is when BTC runs out of things to mine a) why would miners that needed to process transactions even stick around hashing and not just go to the fork where they could actually make money? b) and doesn't this just mean technically you could create widely accepted fork from a major crypto like BTC, have a 0% transaction cost between each and essentially have them level out using purchasing power parity...basically just extending the initial money supply by making transaction costs 0 between the parent and the fork? Since cryptos aren't based on economic strength, or trade imbalances like fiat currencies, it seems you'd just easily be able to eventually make them hit parity for the mere sake of keeping computers (miners) around to verify transactions.

Bitcoin and others like it I feel are going to become far more centralized than people think, otherwise I don't see who the hell is going to use their computing power to verify transactions...which is really what miners are doing.

Maybe I'm missing something.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#95

Post by tlrobinson »

jpmattia wrote: post #88
adrianratnapala wrote: post #74

Has anyone discussed the future of forks with respect to futures? Or indeed to any cryptocurrency denominated debts. The easy case is: Alice owes Bob 1.0 BTC in year 2020. Between then and now, BTC forks into BTC and BTZ -- and so now Alice Owes bob 1.0 "new" BTC and zero BTZ. On net, does this mean that whatever fork retains the legal position of BTC is going to be in more demand than hypthetical BTZs? Given that, w…

> Has anyone discussed the future of forks with respect to futures? The reference bitcoin index for futures is well-defined: http://www.cmegroup.com/trading/files/bitcoin-reference-rate... I would guess that this was done in collaboration with the relevant exchanges. So forks are pretty much a don't-care for the futures that begin trading in the next two weeks.

That doesn’t actually address the case where the constituent exchanges disagree on which side of a contentious fork is “Bitcoin”.

Exchanges are incentivized to quickly converge on one or the other so it may not be a problem.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#96

Post by dragonwriter »

partiallypro wrote: post #94
tlrobinson wrote: post #90

Earlier quoted context omitted.

No, the forked coins and the original coins aren’t fungible. It’s more like me saying “show me your dollar bills at the time of the fork and I’ll give you an equivalent amount of Monopoly money”. It’s not going to be worth anything unless you somehow convince a bunch of other people it’s worth something, and even then it’s likely going to be worth far less than the original coins because fewer people will accept it a…

I'm not saying they'd be 1-to-1 off the bat. I'm asking do forks have their own supply, and are no longer limited by the supply of the previous coin? If so, my question is when BTC runs out of things to mine a) why would miners that needed to process transactions even stick around hashing and not just go to the fork where they could actually make money? b) and doesn't this just mean technically you could create widel…

> when BTC runs out of things to mine a) why would miners that needed to process transactions even stick around hashing

Bitcoin is designed with transaction fees for miners which in principle can replace block rewards as an incentive for hashing.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#97

Post by vostok »

osrec wrote: post #82
bogomipz wrote: post #10

>"The decision to clear client trades will be made on a case-by-case basis, the person said." Could someone say what "clearing the trades" mean here?

Clearing is all about novation. This basically means that the buyer and seller don't see each other as counterparties, but only see Goldman as the "middle-man" counterparty. It's a method of reducing counterparty risk, as both parties end up transacting with a credible institution, rather than directly with each other. This also means that the central clearing counterparty takes on counterparty risk, and that's prett…

I'm not an expert on the nitty-gritty details of back office stuff, but typically novation comes into play when you're dealing with swaps. These are centrally cleared futures so you're not facing the person on the other side of the trade.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#98

Post by vostok »

olalonde wrote: post #49
bogomipz wrote: post #10

>"The decision to clear client trades will be made on a case-by-case basis, the person said." Could someone say what "clearing the trades" mean here?

Why don't their clients trade directly on the exchange? What value does GS provide here?

You still need to clear the trades even if you directly trade on the exchange. It's just not worth the expense for the vast majority of customers to maintain clearing memberships for every single product at every single clearing house.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#99

Post by vostok »

bogomipz wrote: post #16
curiousgal wrote: post #14

Earlier quoted context omitted.

Clearing the trades means both buying and selling.

So they are the market maker?

Clearing doesn't mean buying and selling.

There's not really a great analogy, but the idea is that Goldman is on the hook if one of their customers can't maintain the margin/haircut.

Re: Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live

#100

Post by vostok »

jpmattia wrote: post #92
bogomipz wrote: post #10

>"The decision to clear client trades will be made on a case-by-case basis, the person said." Could someone say what "clearing the trades" mean here?

I think there is something of term-of-art here. "Clearing brokers" (like Goldman) vet the clients who send transactions to the exchange. If the client defaults on a trade, Goldman is likely liable to the clearing house for the default amount, so it is in their interest to clear only those clients with sufficient collateral to provide margin. Note that a clearing broker is different from a clearing house. The clearing…

This is the correct answer and only one of two correct answers at the moment.

Aside from the difference between the clearinghouse and the clearing broker, the difference between the executing broker and the clearing broker is also interesting.

For example you might have bank A as your executing broker and they give up the trade to bank B which is your clearing broker. You might even have your own exchange membership and bank B clears the trade for you.

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