I disagree completely. Cash settled futures let people bet on bitcoin without ever touching bitcoin itself. For example, suppose I am a huge bitcoin hater and want to bet that bitcoin will go down 100% in the next 3 months. Why force me to worry about wallets, etc.? I just want to have a way to express my conviction without messing with all that stuff.

On principle I agree, however Bitcoin poses additional complexities that other commodities do not, specifically in regards to contentious netsplits that result in irreconcilable forks (which may or may not be fighting for the name Bitcoin). In the event of a netsplit, barring physical delivery of actual outputs (private keys, not a settlement transaction), CME has the power to dictate which is settled and even which fork gets the BTC ticker for in-flight contracts. This gives CME quite a bit of influence in the outcome of a fork; for example, what would CME have called Bitcoin if their futures were live during the 2x hard fork? If they were swayed by some of the larger players in the space, this could cause serious consequences for the wider network (confusion, loss of funds and other moral hazards).

This is one of the complexities of the ETF filings, where the filers stated their intention to determine which fork the ETF represented by things like hashpower, market cap or other temporal data points. This is dangerous for many reasons, thus it is best for the contracts to represent all possible future forks and not make a decision on them, allow the private keys to be delivered and allow the party who the coins are delivered to take split as they see fit. While this condition could be represented in a cash settled contract, there are infinite possible forks and CME could not possibly keep up with them all, thus the only practical way to solve the problem is physical delivery of private keys.

Lots of people trade physically settled commodities futures contracts without handling the underlying products. You just have to make sure you close or roll your position before it settles.

Of course, but you could get stuck in a position. What's the point when cash settling accomplishes the same thing ?

Physically settled allows the future to better match the price of the underlying since you can take or give delivery in it.

That's not correct. They still have to pick a settlement price. Physically settled futures makes sense when customers are interested in the commodity itself and cash settled makes more sense for pure speculation.

There are many products that are settled both ways, and some financial futures that are physically settled.

Sure. But physically settled funancial futures such as bond futures are physical because customers actually want to get delivery of the underlying bonds. In the case of bitcoin futures, most likely they don't. Physically settled futures cost the exchange more in terms of additional expenses / infrastructure. So the exchange will go with physical only when there is a clear customer demand for that.

You're going off track. I'm just saying that phys settled allows the future to track the underlying better because you can take delivery. This is a completely seperate issue on if you actually want to hold the underlying (many people would prob love the idea of using cme to deal in btc directly since current exchanges are so terrible at it).

why does it track better just because you take delivery? either way, whether you take delivery or not, the exchange has to decide on a settlement mark to market price. So, delivery or not, it will track the same.

Because you can take delivery and sell on spot market either now or in the future (with carry costs) or buy on the spot now, carry, and sell into the future. This keeps the prices linked.

It's not just GDAX: http://www.cmegroup.com/trading/cf-bitcoin-reference-rate.ht...

Oh, I didn't realize. At some point I read it was just GDAX.

Even still, cash settlement is terrible.

Why's that? For some derivatives, cash settlement is the only thing that makes sense. E.g., look at their weather derivatives. It's not like anybody wants to take delivery on a petagram of cold air.

The majority use case for Bitcoin isn't using Bitcoin at all. It's speculating on Bitcoin. Those people definitionally don't care about Bitcoin for its own sake.

I'm pretty sure the exchanges are offering these not because anybody actually has forward needs to buy or sell Bitcoin, as they would with, say, wheat. People just want to speculate. For those people, cash settlement is exactly what they're after.

Agreed. It's kind of a farce, and it seems like they're merely hijacking the Bitcoin name without actually dealing in Bitcoin.

Apparently there have been cash-settled futures on a whole bunch of commodities for years now, so this sounds like another case of "I just discovered how finance works and I don't like it".

Bitcoin differs from commodities like gold in that it's something which can be trivially transferred electronically. It doesn't make much sense to 'buy' cash instruments when you can just get the real thing.

Between poor usability, variable fees, blockchain congestion, and security I wouldn't say transferring Bitcoin is trivial.

There may also be a regulatory angle here. ETFs that are backed by Bitcoin have been repeatedly smacked down by the SEC, but futures that merely bet on the price while not touching actual Bitcoin seem to be OK. I can imagine that this probably infuriates true believers.

Holding any commodity comes with a huge amount of risk (what do I do with these oil barrels? ... livestock? ... crops?). Settling futures would involve moving these things from place to place.

But whither bitcoin, you say? Moving those is easy! Yes, but holding them is hard. Who wants Your Favorite Mutual Fund to hold bitcoins? Not them, that's for sure. There's much more risk there than necessary.

In what way is holding Bitcoin hard? That's the point of it. It's a store of value that's easy to hold directly.

If you hold it, you own the risk of securing it. If I were a mutual fund, I'd much rather pay a premium to someone with expertise (like an exchange or some agent of the exchange).

I agree but it is ironic, because one of the great strengths of Bitcoin is that, with just a little education and following the right basic procedures, anyone can hold it directly with very little risk. No need the need for any middlemen, custodians or trusted third parties.

But yes I can see that some people/businesses would want to outsource that risk by trusting someone else to do it properly.

> It doesn't make much sense to 'buy' cash instruments when you can just get the real thing

It does if you only want to be exposed to price movements. With futures you can get that exposure with a much lower initial outlay than if you bought (or sold) the underlying. Leverage, in other words.

That's pretty much the point of them. Whether it's something that you'd find value in is somewhat beside the point. As well as speculation, I'd expect there is probably a market for people who actually want to use bitcoin as a medium of exchange. The current price fluctuations are a pain in the arse.

>> it really should be "bitcoin settled".

Sorry but you can't have futures on bitcoins that are settled in bitcoins.

Why not? CME has futures that are settled with physical delivery.

It definitely makes it a pain for post-settlement management, and would likely prevent a lot of people from trading those futures, but why exactly is it not possible?