Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker • Hacker News Board

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#181

Post by runeks » Mon, Dec 11, 2017, 4:57 PM UTC

omgtehlion wrote: post #68

LrnByTeach wrote: post #40

I am trying to understand risks with arbitrage for professional traders with BTC spot (at Coinbase gdax) and CBOE Futures contract. Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously" At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously. http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures you wait…

When you buy base and simultaneously sell future contract, you effectively lend your money to other counterparty. In ideal market this should be equal to interest on loan (as you mentioned). There are two possibilities of what is really going on: - either there are not enough arbitragers yet - or you should factor in commissions, fees, ease of transferring money between exchanges, etc

> When you buy base and simultaneously sell future contract, you effectively lend your money to other counterparty. In ideal market this should be equal to interest on loan (as you mentioned).

Good point. But the interest on what amount, exactly? You need both 1) capital to buy bitcoins and 2) capital used for margin on the futures exchange. The latter amount is unpredictable, and if the bitcoin price shoots to 10x the spot purchase price you will need to borrow ~35% of this amount for margin, thus making the effective interest around 4x the market rate.

So, in short, the amount that the futures contract price will deviate from spot should be proportional to the volatility of the bitcoin price (because you need to borrow an amount proportional to this for use as margin).

But this only applies to cash-settled bitcoin futures contracts. If settled in bitcoins, it should be sufficient to deposit bitcoins at the futures exchange as margin — thus making the price of these, physically settled, futures contracts only depend on the prevailing short-term rate of interest, as far as I can see.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#182

Post by flatline » Mon, Dec 11, 2017, 4:58 PM UTC

stef25 wrote: post #170

tehlike wrote: post #15

Earlier quoted context omitted.

IF you want privacy, there are alternative coins that are fairly active with development: Monero, zcash, etc. I am not endorsing anything, but i believe the privacy & fungibility are important in a digital currency. On the sad side, people who put money in bitcoin are thinking it's a great investment. This is not to devalue your comment, but for the past 10 years, almost every years, the low lows have been increasing…

Maybe this isn't the right place to ask this question, but how is Monero any different than the Bitcoin example you respond to, when the vendor you sent your crypto currency to to exposes your identity?

Monero uses ring signatures to mix your transaction outputs with others', providing "plausible deniability" of the subsequent inputs. It furthermore uses stealth addresses to hide the transaction history to an individual address. This is not foolproof and has been shown to be traceable in a number of cases, but it's a heck of a lot better for anonymity than bitcoin.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#183

Post by knowThySelfx » Mon, Dec 11, 2017, 5:01 PM UTC

nawtacawp wrote: post #125

user5994461 wrote: post #73

Earlier quoted context omitted.

>>> case 1: Bitcoin price shoots to $25,000 >>> case 2: Bitcoin price drops to $8,000 case 3: one of the exchanges canceled your order shortly after they were done. case 4: the exchange refuses to pay you out for whatever reason they invent. case 5: the exchange goes bust, either seized by the police, hackers or the owner outright left with all the money. In all these cases. You are likely to loose 100% of the sum yo…

Just want to add for those new to btc, these are not far fetched scenarios — they have all happened in the past.

Does this remind us of some glorified Ponzi scheme? How does Bitcoin get hacked? It certainly isn't easy unless you are an insider. And perhaps NSA, since they created SHA-256.

https://bitcointalk.org/index.php?topic=291217.0

The bubble will burst - some people will make money out of this and a whole lot of others will lose.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#184

Post by tzahola » Mon, Dec 11, 2017, 5:15 PM UTC

mattm wrote: post #169

pbhjpbhj wrote: post #130

Earlier quoted context omitted.

Presumably you can watch the exchange's wallets and see anomalous behaviour relatively easily?

Do exchanges publicize their main wallets? Is there a listing somewhere?

Yes. It's called "the blockchain".

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#185

Post by tehlike » Mon, Dec 11, 2017, 5:16 PM UTC

flatline wrote: post #182

stef25 wrote: post #170

Earlier quoted context omitted.

Maybe this isn't the right place to ask this question, but how is Monero any different than the Bitcoin example you respond to, when the vendor you sent your crypto currency to to exposes your identity?

Monero uses ring signatures to mix your transaction outputs with others', providing "plausible deniability" of the subsequent inputs. It furthermore uses stealth addresses to hide the transaction history to an individual address. This is not foolproof and has been shown to be traceable in a number of cases, but it's a heck of a lot better for anonymity than bitcoin.

There are new improvement - there was a article about monero being tracable > 50% of the time, but it was fixed right around when the article came out to be.

As for the original goals of bitcoin, maybe monero is closer to it. I don't know.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#186

Post by pedrocr » Mon, Dec 11, 2017, 5:20 PM UTC

sametmax wrote: post #155

Asdfbla wrote: post #142

Earlier quoted context omitted.

At least traditional modern financial instruments still have some connection to an underlying real-world market, even if they are 10 layers of financial abstraction removed from reality. They can also always sort of justify it by saying that it provides liquidity and so on. Harder to justify what the point of Bitcoin financial instruments is though, since it can't really be used for much at all in its current state.…

> At least traditional modern financial instruments still have some connection to an underlying real-world market In 2012, 50% of of US trading was considered "automated high-frequency trading".

The same will hold for Bitcoin almost surely. The fraction of transactions that are speculation and the fraction of holdings that are speculations are very different things. Most stock market transactions are speculation but they don't hold capital for very long. But most stock holdings are not speculation, they're just boring holdings of assets by pension funds, retail investors, etc.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#187

Post by gibybo » Mon, Dec 11, 2017, 5:24 PM UTC

nostrademons wrote: post #35

gibybo wrote: post #6

Earlier quoted context omitted.

The markets are not as independent as they might seem. If the futures market gets ahead or behind of the other BTC markets, it creates opportunities for arbitragers to profit from the difference which has the effect of reducing the gap. It doesn't matter that they are cash-settled. For example, if lots of money start pouring into Bitcoin futures, the futures price will rise above the price on BTC exchanges. It will t…

I do wonder how counterparty risk will be priced into the futures contracts. There've been a number of cases - Mt. Gox, Bitfinex, any Chinese/Korean/Zimbabwean exchange if you're not a resident of that country - where you can sell a Bitcoin for a nominal price on the exchange but not be able to withdraw that money into the fiat financial system. That's led to structural differences in prices between exchanges which d…

Right now 1 BTC on Gemini (the reference exchange for CBOE Bitcoin futures) is $16,600 and the futures price is $17,800 for a 1 or 2 month contract. Since the risk free rate is about 0.125% monthly and this spread is 7.2%, it looks like the market is pricing the counter-party risk at about 7% for one or two month durations.

That seems pretty high to me though, you can arbitrage on Coinbase and Gemini which are both US based regulated exchanges (they have licenses, insurance, and audits) with what I would expect to be less than 7%/month risk. Perhaps there just aren't many arbitragers with access to the futures market and knowledge of Gemini/Coinbase yet. I'd arbitrage it myself but I have no retail brokerage access to shorting the future contracts.

Further evidence the market just isn't acting efficiently yet: volume of 3.43k contracts today, which is only $61M. The 24 hour trade volume of the top 5 Bitcoin exchanges is $5 billion.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#188

Post by jpmattia » Mon, Dec 11, 2017, 5:25 PM UTC

d--b wrote: post #80

LrnByTeach wrote: post #40

I am trying to understand risks with arbitrage for professional traders with BTC spot (at Coinbase gdax) and CBOE Futures contract. Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously" At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously. http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures you wait…

As others pointed out, when you buy/sell futures, you risk counterparty risk. But it's not that bad because that exchange is really good and people entering the market pay margin calls every day. There is also a financing cost (ie. the cash you use to pay for your margins, transaction costs, and to buy the bitcoins will not pay you any interests over the time of the position). But again, the effect is not very large.…

> As others pointed out, when you buy/sell futures, you risk counterparty risk.

Yes, but: There is a chain of companies that have to fail before you incur the loss. The clearinghouse will cover the default first, and bill it back to the clearing broker. So you need someone of the order of Goldman Sachs to fail before counterparty risk affects payments to you.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#189

Post by Veratyr » Mon, Dec 11, 2017, 5:29 PM UTC

LrnByTeach wrote: post #40

I am trying to understand risks with arbitrage for professional traders with BTC spot (at Coinbase gdax) and CBOE Futures contract. Let us say, some professional trader "Short sell CBOE Future contract & Buy BTC Spot at Coinbase simultaneously" At the time of this writing, Futures contract short sell @ $18700 and BTC Spot buy @ $16700 simultaneously. http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures you wait…

What you're missing is that these prices will converge as the Futures market develops and more professional arbitragers get on board. When that happens the gap will shrink significantly and be far less profitable.

Re: Bitcoin Futures Start with a Bang as Rally Trips Circuit Breaker

#190

Post by FireBeyond » Mon, Dec 11, 2017, 5:30 PM UTC

emerged wrote: post #11

gchokov wrote: post #2

Can’t really wrap my head around the rise of BTC in futures trading, as they are all cash settled. In other words, pure betting and gambling with the futures, as they really do not touch the underlying BTC. I guess, just a regular day in the massively manipulated crypto currency world...

My read is that futures trading legitimizes Bitcoin, perceptually at least signaling mainstream financial adoption of Bitcoin. I'm sure that read is only one of the myriad of subjective factors involved (let's all agree that Bitcoin rises and falls in clouds of collective subjective perception), but I think it may be the dominant one.

I'd say the dominant factor is "the sheer number of exchanges that have varying degrees of resistance, from mild to total, of converting BTC to USD" ...

Be they delays on withdrawal, explicit, or just ghosting.

Be they unrealistic minimums (Bitfinex will not process such a transaction for >250BTC, $4.5M or so at today's rates).

Be they whatever flavor excuse-of-the-day.

Some exchanges need to learn to walk before they run.