How an obscure OTC-traded derivative from the 80s took over crypto
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How an obscure OTC-traded derivative from the 80s took over crypto
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Re: How an obscure OTC-traded derivative from the 80s took over crypto
#2perpetual futures, first used by Chinese gold miners in Hong Kong, took off at bitmex with 100x leverage.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#3I was reminded of the characterization of cryptocurrencies as "Perpetual Zero Coupon Bonds": https://martincwwalker.medium.com/impossible-finance-the-per...
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#4If the contract never expires, what mechanism keeps the price of the contract in line with the price of the physical good?
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#5I was reminded of the characterization of cryptocurrencies as "Perpetual Zero Coupon Bonds": https://martincwwalker.medium.com/impossible-finance-the-per...
First time hearing about Zero coupon bonds and Perpetual bonds... Nonetheless, wouldn't author's description of perpetual zero coupon bond apply to many (most? all?) fiat currencies as well, since these are not really backed by anything anymore?
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#6If the contract never expires, what mechanism keeps the price of the contract in line with the price of the physical good?
Through "funding". If the perpetual future's price is above (below) spot's price, long holders pay (receive) short sellers an interest at a regular interval (every 8 hours at most crypto exchanges).
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#7If the contract never expires, what mechanism keeps the price of the contract in line with the price of the physical good?
Periodic exchange of money between longs and shorts, AKA "funding".
If the contract price is above the price of the physical good, holders of the contract ("longs") pay the sellers of the contract ("shorts") a small fee every few hours.
This makes it less valuable to hold the contract, and pushes the price of the contract down, until its on par with the price of the physical good.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#8If the contract never expires, what mechanism keeps the price of the contract in line with the price of the physical good?
Pay a fee to maintain the contract. Must post collateral if price moves against you or get liquidated.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#9I was reminded of the characterization of cryptocurrencies as "Perpetual Zero Coupon Bonds": https://martincwwalker.medium.com/impossible-finance-the-per...
First time hearing about Zero coupon bonds and Perpetual bonds... Nonetheless, wouldn't author's description of perpetual zero coupon bond apply to many (most? all?) fiat currencies as well, since these are not really backed by anything anymore?
You can think of currency as a negative coupon bond, even - if you hold onto cash you generally expect it to lose value.
In order to function properly as a currency, an asset needs to be the least volatile liquid asset available in the economy (or at least to be competitive along this axis). The expectation the asset will slowly depreciate is compatible with this requirement. The expectation that your currency is a highly deflationary lottery ticket to be traded on 100x margin (and the kicker is that your collateral is some other highly volatile cryptoasset) - not so much.
That's why the price of goods and services are almost never set in Bitcoin (rather, the price is set in dollars and floating in Bitcoin). It's too volatile to fulfill all of the roles of a currency, but if you're quick about it you can use it as a medium of exchange.
This is more or less a summary of Taleb's argument that the net present value of Bitcoin is zero.
Re: How an obscure OTC-traded derivative from the 80s took over crypto
#10I was reminded of the characterization of cryptocurrencies as "Perpetual Zero Coupon Bonds": https://martincwwalker.medium.com/impossible-finance-the-per...
First time hearing about Zero coupon bonds and Perpetual bonds... Nonetheless, wouldn't author's description of perpetual zero coupon bond apply to many (most? all?) fiat currencies as well, since these are not really backed by anything anymore?
From OP link:
The value of cryptocurrencies, in spite of a collapse in value, is stopped from falling to their natural value, i.e. zero, by a combination of market manipulation, investor ignorance and a tsunami of lies on social media from those paid to promote these worthless frauds.
Which isn't how the US government backing the USD works at all.