Professional Traders Show Interest in Bitcoin • Hacker News Board

Re: Professional Traders Show Interest in Bitcoin

#91

Post by JumpCrisscross » Mon, Apr 02, 2012, 10:07 PM UTC

Estragon wrote: post #75

JumpCrisscross wrote: post #59

Earlier quoted context omitted.

I was a quant prop derivatives trader at an investment bank. The correlation between MtGox/USD [1] and GLD daily returns over 12 April 2011 - 30 March 2012 is 0.02; a linear regression produces a 0.151 beta (GLD daily returns independent) with a coefficient of determination of 0.0004. GLD had a period return of 14% with an average daily return (standard deviation) of 1.4% (0.1 percentage points); MtGox/USD had 531% w…

Your post raises a couple of questions for me: 1) If you know how to nuke the bitcoin system for profit, are you doing so? It's not clear to me that you personally would be able to corner and squeeze as easily as you think, because I believe most bitcoins are held by a small group of people with a long term interest in a viable bitcoin economy. 2) HFT is usually justified by its practitioners as improving the stabili…

1) I am not because of what you said - it's tough, more so from a data architecture standpoint (set up the accounts, data scrapes, etc.). Also, at 8 million USD 30-day dollar volume on MtGox, I'm not sure if there's enough depth yet to make it worth it (still toying with the idea, though).

A currency's value isn't a function of how much of it is outstanding but how much is transacted in it. If "most bitcoins are held by...people" holding on speculation, they contribute to holding its value down (don't think of stocks with dividends, think of fx). They also make the market smaller and less liquid.

2) The quote cycling HF market making algos use to discover prices disappears in a liquid market. If done in penny stocks, on the other hand, it would scare the hell out of everyone when a market order executes against a discovery bid way out on Pluto.

When these slips happen the HF guys get hurt - that's why they pull their servers causing the liquidity cuts they're criticised for. Thus, they work to predict when that kind of slip-up will happen. I'm reversing the logic and saying I'll force the slip-up and take advantage of the volatility right after, something with uncertain pay-off in liquid markets (you burn yourself in spawning the unstable equilibria) but more definite pay-off in illiquid ones.

Note that I wouldn't recommend trading Bitcoins at a high frequency for the same reason that HFs don't mess with penny stocks. The pay-off is too low compared with the infrastructure investment required. I'd probably also blow my cover with the exchanges.

Hope that answers your question!

Re: Professional Traders Show Interest in Bitcoin

#92

Post by JumpCrisscross » Mon, Apr 02, 2012, 10:11 PM UTC

_k wrote: post #69

JumpCrisscross wrote: post #59

Earlier quoted context omitted.

I was a quant prop derivatives trader at an investment bank. The correlation between MtGox/USD [1] and GLD daily returns over 12 April 2011 - 30 March 2012 is 0.02; a linear regression produces a 0.151 beta (GLD daily returns independent) with a coefficient of determination of 0.0004. GLD had a period return of 14% with an average daily return (standard deviation) of 1.4% (0.1 percentage points); MtGox/USD had 531% w…

You can say that about the gold market as well, no ? It takes you back a hundred years and you can corner and squeeze it.

Or the silver markets [1]. Difference is the SEC doesn't protect Bitcoin exchanges [2]. Thus, while both roll back time in terms of the asset as a currency, only one rolls back the clock in terms of regulation. A loose analogy would be a cat-and-mouse game with primordial mice.

[1] http://opinionator.blogs.nytimes.com/2011/03/02/a-conspiracy...

[2] http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a...

Re: Professional Traders Show Interest in Bitcoin

#93

Post by JumpCrisscross » Mon, Apr 02, 2012, 10:55 PM UTC

JumpCrisscross wrote: post #59

gfodor wrote: post #5

It would be interesting to hear a real quants take on the utility of having bitcoin as a (small) asset class in your portfolio. How much correlation does bitcoin have to any other asset class? I'd wager very, very little, making it a strong candidate for diversification. That said, it's overall volatility might offset the reduced expected volatility you'd see in your portfolio by holding some.

I was a quant prop derivatives trader at an investment bank. The correlation between MtGox/USD [1] and GLD daily returns over 12 April 2011 - 30 March 2012 is 0.02; a linear regression produces a 0.151 beta (GLD daily returns independent) with a coefficient of determination of 0.0004. GLD had a period return of 14% with an average daily return (standard deviation) of 1.4% (0.1 percentage points); MtGox/USD had 531% w…

EDIT: MtGox/USD returns 0.12 points per unit of standardised risk in a simplified environment; GLD 0.05 (both these numbers are very low). Thus, Bitcoin delivers 2.7 times the return per unit of risk as GLD; I got it backwards in my post. Sorry about that.

Re: Professional Traders Show Interest in Bitcoin

#94

Post by lwat » Mon, Apr 02, 2012, 11:29 PM UTC

alexmat wrote: post #51

lwat wrote: post #29

Earlier quoted context omitted.

Who exactly will sell me put options on BTC?

Producers and merchants trying to hedge their cash flow. It would actually be very useful to have a liquid options market to help producers and merchants overcome the current volatility.

Could you name one? I've never heard of anyone selling a put option on BTC.

Re: Professional Traders Show Interest in Bitcoin

#95

Post by lwat » Mon, Apr 02, 2012, 11:29 PM UTC

jarek wrote: post #36

lwat wrote: post #29

Earlier quoted context omitted.

Who exactly will sell me put options on BTC?

You could probably find a willing "I'm putting all of my life savings in Bitcoin because it is rapidly appreciating" type to do the deal, it's free money as far as they see it.

I've looked and I could not find anyone like that.

Re: Professional Traders Show Interest in Bitcoin

#96

Post by jarek » Mon, Apr 02, 2012, 11:45 PM UTC

lwat wrote: post #95

jarek wrote: post #36

Earlier quoted context omitted.

You could probably find a willing "I'm putting all of my life savings in Bitcoin because it is rapidly appreciating" type to do the deal, it's free money as far as they see it.

I've looked and I could not find anyone like that.

You could try following up with this guy: http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving...

(for reference, HN discussion was here: http://news.ycombinator.com/item?id=2596475)

Re: Professional Traders Show Interest in Bitcoin

#97

Post by moldbug » Tue, Apr 03, 2012, 12:32 AM UTC

kylebrown wrote: post #86

moldbug wrote: post #84

Earlier quoted context omitted.

Upvoted. When the USG starts shutting down the exchanges, which will happen any minute now, Bitcoin will go to zero and stay there. Everyone who thought their BTC was worth USG will want out - and find that the doors are now locked. The BTC price won't even be epsilon. It'll be zero. The monetary design of Bitcoin is sound. The political design, not so.

Most exchanges are outside the USG's jurisdiction. Even if the USG tries to crack down, there will always be workarounds. The USG has been cracking down on online poker and gambling sites fir years, but that has never stopped the growth of the online-poker market in the US (to this day, online poker sites continue to sponsor poker tournaments that are aired on ESPN). The USG has been successful killing payment compan…

The agencies fighting against online poker are much weaker; also, poker is a profitable business that can defend itself.

The US dollar is a centralized system. US financial regulation is in effect worldwide (except now Iran, I guess). If you have a decentralized system dependent on a centralized one, it's a centralized system.

Bitcoin is not dependent on the USD for its operations, just for its value. The day after MtGox (for instance) is indicted, everyone will be selling and no one will be buying. Also, all payment processors everywhere will cut off all Bitcoin exchanges everywhere.

(Everywhere excluding Iran, I guess. Is Bitcoin big in Iran?)

Re: Professional Traders Show Interest in Bitcoin

#98

Post by nandemo » Tue, Apr 03, 2012, 4:03 AM UTC

jerguismi wrote: post #55

nandemo wrote: post #20

Earlier quoted context omitted.

I'm not a quant, but you also have to consider the operational and regulatory risk of dealing in bitcoins. The people who are currently trading bitcoins don't necessarily have to follow the same regulations that banks and trading houses do. Also, consider that over 80% of the foreign exchange market is accounted by 6 currencies or so: US dollar, yen, euro, British pound, Swiss franc and Australian dollar. Traders bar…

> even though these currencies are much more likely than bitcoin to be around in 5 years. How so? As bitcoin is a p2p network, it is likely to be around whatever happens. The only thing that could happen would be that internet breaks down - pretty unlikely, I think. Even when internet breaks in several pieces, each "local internet" will just use their own bitcoin - the block chain will be split in to several. After t…

I'm talking about a), of course. In this context, I don't see the point of talking about b) regardless of a). You might as well say that the pre-war German mark "is still around" since some people happen to be holding old German coins, and maybe are trading them on ebay.

Re: Professional Traders Show Interest in Bitcoin

#99

Post by lwat » Tue, Apr 03, 2012, 4:46 AM UTC

jarek wrote: post #96

lwat wrote: post #95

Earlier quoted context omitted.

I've looked and I could not find anyone like that.

You could try following up with this guy: http://falkvinge.net/2011/05/29/why-im-putting-all-my-saving... (for reference, HN discussion was here: http://news.ycombinator.com/item?id=2596475 )

That guy is just buying bitcoins, he's not interested in writing put options.

Re: Professional Traders Show Interest in Bitcoin

#100

Post by stuhood » Tue, Apr 03, 2012, 5:26 AM UTC

jarek wrote: post #89

kylebrown wrote: post #77

Earlier quoted context omitted.

There's no other decentralized e-currency. This means bitcoin is the only electronic payments and storage system where your funds are not subject to seizure by a central authority. You won't wake up one day and find your account frozen (cf paypal, bitcoins are safe in the blockchain as long as you have your wallet) or be totally helpless if the domain name of some fly-by-night startup goes down (cf e-gold, bitcoins a…

> This means bitcoin is the only electronic payments and storage system where your funds are not subject to seizure by a central authority. Unfortunately, Bitcoin is not "men with guns entering your house or server location and taking your drive" proof.

See http://en.wikipedia.org/wiki/Deniable_encryption