They also permit borrowing. If I borrow U.S. dollars from you and then disappear, a court can drain the funds (if they’re there) from my accounts. That wasn’t possible with cash. The capability enabled an explosion in credit and financial creativity.
Bitcoin, natively, is like cash. Borrowing and rates are afterthoughts. Futures fix that.
There is a certain hilarity in the multiple layers of hypocrisy here. A bankless Bitcoin coöpted by the banks. Investors wanting Bitcoin washed of its principles. Wall Street establishing itself as a gatekeeper to cheers from its detractors. Nevertheless, a lot of money is to be made.
Basically, borrow bitcoin and you are in a short BTC speculative trade, lend it and you are long the same. If you'd borrowed $100 worth of bitcoin last year, you'd owe what, $1,000 this year? It's not a loan, it's a bet. And how do futures fix this?
Rates? Even mentioning rates on a BTC "loan" sounds entirely out of place.
OK but money isn't just about credit. It has two other functions: store of value and means of exchange.
As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
I thought it might be interesting as a means of exchange, and maybe it is in certain situations, but commissions seem too high for use as a major global digital payment system. You pay out of your currency to BTC, then from BTC to the target currency, plus the transaction fees which can be prohibitive unless you're moving some serious loot. I make a lot of small international payments and would love a great solution, but I can't see bitcoin as it. Who actually uses BTC? I mean, other than speculators? ("Investor" is a euphemism here, buyers of bitcoin are commodity or currency speculators.)
I predict even when a better chain comes along than bitcoin, bitcoin will still enjoy the benefit of being the gateway to and from traditional funds. Demand for alts will create demand for bitcoin which I think we already see.
> As a store of value BTC is highly uncertain. It will multiply or decimate whatever value you try to store in it.
If it ends up being an accepted store of value, this property will change over time. It'll look more like gold. Most people wouldn't' consider 'SPY' (SP 500 index shares) a store of value, but this is essentially how people are using them. You save money, and store it somewhere that will best preserve that value. Given the rate of asset price inflation, as well as increases in costs like medicine, you need to earn a return just to store the value.
The bitcoin price volatility you're seeing now is an adoption curve ramping up. Of course there are huge rewards for early adopters.
All it takes is enough people believing that this store of value works, acting on the belief, and that belief becomes real. Financial markets are formalized mechanism to control what is really like magic; beliefs that become real when sufficient people believe them.
That's actually one of the biggest use-cases.
It's not the the libertarian segment of the community has done a 180 to cheer Wall St's cooption of bitcoin. Instead, you're witnessing a lot of people who hold bitcoin who are excited that more and more people appear to regard it as a serious store of value. These people are probably not libertarian types--they're interested in bitcoin as an investment, and don't really care if the additional money entering the ecosystem comes from Wall St.
I'm not judging said investors. As Matt Levine said, "'the need for a bitcoin ETF,' I once wrote, and it is just as true of a bitcoin future, 'is an argument against buying it'" [1]. Though, at this point, Wall Street is simply thrilled they've been given a magic number around which to design securities and for which any faults can be safely blamed on Silicon Valley.
[1] https://www.bloomberg.com/view/articles/2017-11-22/uber-hack...
The initial margin is expected to cover a the movement of an observable through making the margin call, the period of time the margin call could be filled, declaring the counter-party in default and closing out the position. This normally adds up to a minimum of 2 working days.
Saying that it's beyond the realms of possibility for bitcoin to jump or fall 30% in 2 days seems ridiculous.
For example, on Dec 7, 2013, volatility between the high and the low was 54.6%. [1] However, it was lower for the other days of all 30 day periods that include that day, and averaged out to under 15%.
- allow an explosion of ETF's, including levered ones, to begin trading. With futures you can now hedge out your bets so it should, at least in theory, be easier to find a counter party to write you a swap against bitcoin volatility. It also lays the ground work for the SEC to see a functioning market for these products which they ahve said is a prerequisite to allow bitcoin ETF's to trade.
- give some rules around what's considered a fork and what should be ignored in the bitcoin world. Each of these products will provide some "adult" guidance to other markets as to which alt coins, forks, etc should be considered vs ignored.
From an implementation perspective there are two differences I see between the COBE and CME implementations.
1) The CBOE’s contract size will be based on a single bitcoin, while the CME’s contract size will be based on five bitcoins, a current notional value of more than $50,000.
2) The CBOE’s contracts will be cleared by Options Clearing Corp. while CME will clear its own futures. The CME has estimated that initial margin on the contracts — or the amount of collateral set aside relative to the value of a trade — may be as high as 30 percent, an unusually high amount.