We had an article on the Kelly criterion just the other day that handily refutes your point.

Even if bitcoin is certain to crash, without a deep understanding of when (and by extension, how) a naive futures trader still runs a good chance of being eaten alive, or making poor returns.

Stating bitcoin will crash is a bit like the conventional wisdom that smoking is bad for your health. One can reasonably be very confident in the truth of it without being confident in specific odds on any bad outcome.

"The market remain irrational longer than you can remain solvent."

Or maybe you were just wrong and not everybody else? Just a thought. (I know this is a quote from Keynes)

Care to link that? I am pretty sure the Kelly Criterion is a betting strategy. What does that have to do with bitcoin?

Edit: Found it. https://rhsfinancial.com/2017/06/line-aggressive-crazy/

I hope you really think about applying the Kelly Criterion to trading bitcoin futures and hope you realize that the person completely ignores friction(transaction costs),and does not show a sharpe ratio( who cares if you beat a benchmark with 10x the risk).

"[In November 2000.] Those kinds of times… when everyone is running around like a chicken with its head cut off, that's pretty good for us… "~Jim Simons (https://en.wikipedia.org/wiki/Renaissance_Technologies)

The Kelly Criterion is a betting strategy that, given the probability and payoff of different outcomes, tells you what percentage of your bankroll to bet.

That is true if you have arbitrary knowledge that says that at some point in the future, Bitcoin is certain to crash.

If you're able to associate some timeframe to the idea that with p = 1 Bitcoin will be at half the value it currently is, the Kelly criterion suggests you should be quite a bit of the farm. Applying the Kelly criterion in supposed p = 1 situations (e.g. "Like it or not, [the market will crash]") is pretty invalid.

I'm a huge proponent of putting your money where your mouth is, but staking most of your net worth against what still is a pretty manipulated market is just stupid and is a gamble no one needs to make.

That's the great thing about a futures market. People who want to short Bitcoin with reasonable risk management can do so now. There are a lot of people who have lost their shirts betting against Bitcoin because all you could do were naked short - these derivative markets will provide sophisticated traders the ability to hedge their bets so they can continue to short without getting margin called if Bitcoin happens to double in value before crashing in the coming months / years.

I firmly believe the price is going to crash but I also think it could double or triple before it does. The bitcoin market is insane.

"The market can stay irrational far longer than you can stay solvent"

This comment doesn't really apply here, because the post above suggests explicitly that the true value of Bitcoin is far lower than it is now and the market will realize this in the near-term (i.e. "the market will crash").

If the comment only suggested that the true value of Bitcoin is lower than the currently traded rate (and made no mention of what the market value would do), this particular observation would be relevant.

What level of confidence would you say is represented by that comment? I’d say 95% sounds reasonable, which implies a 5% chance of being wiped out with your strategy. Might be too high for many people.

The better question is how the CME is going to replicate the value of a Bitcoin.

The funny thing about this is when the real smart ones get there hands on this contract (quants), watch out. Goodbye free lunch and hello very efficient pricing.(Low vol)

They don't need to replicate anything, they just need to match buyers and sellers.

Maybe replicating was too strong of word

What I meant was, how they plan on "replicating", constructing the index value ,in which ,they( the CME) will base the value of bitcoin to be.

It is detailed here. https://www.cmegroup.com/trading/files/bitcoin-reference-rat...

CNBC stated that it is a weighted average of 4 index's in the video, but could not find anything of the sort in the article (https://www.cnbc.com/2017/10/31/cme-plans-to-launch-bitcoin-...)

The press release gives some details. The exchanges are Bitstamp, GDAX, itBit and Kraken.

http://www.cmegroup.com/media-room/press-releases/2017/10/31...

but commodities are much more volatile than stocks though

uh, or you could be a reasonable human being and weigh the risks that you're willing to endure for a given return on an investment...