CME, the largest futures exchange, starts Bitcoin futures today

Brendan Burgess

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The Motley Fool has a good article here
5 Things You Should Know About CME Bitcoin Futures




These are much better than the CBoE futures launches last week, as they have a Bitcoin Reference Rate which would be much more difficult to manipulate.

It seems that the minimum unit is 5 Bitcoins, so that is close to $100,000.(I would like to have traded in one future to understand the procedure.)

They have an online course explaining how to trade
 
 

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The June one is very attractive. The bubble will burst. But I don't know if it will be in one week, 3 months, 6 months, or 1 year.
It could even be longer. When people are irrational, there is no telling how long they will be irrational.

Unfortunately, there is some concern about the impact of Bitcoin on the stability of the CME - from an article in the FT at the weekend.

Race to launch bitcoin futures stirs anger

(interesting that the headline in the newspaper says "Race for bitcoin futures stirs concerns")


"Among those worried is Thomas Peterffy, chairman of Interactive Brokers. “I started in the futures industry in 1968. I’ve seen many futures brokers go bankrupt and customers losing all their money. So I know how this works,” he says.

When he learnt that the exchanges were pushing ahead with bitcoin futures, Mr Peterffy spoke to Terry Duffy, chief executive of CME, and Christopher Giancarlo, CFTC chairman. Mr Duffy told him “there’s nothing you can do about it”, while Mr Giancarlo said, “Look, my hands are tied”, recalls Mr Peterffy. CFTC representatives did not respond to requests for confirmation; the CME refused to comment. Mr Peterffy then wrote a letter to Mr Giancarlo, which he also published in the Wall Street Journal. In it he urged the regulator to require a separate clearing house for bitcoin futures so customer losses do not infect brokers who do not want to be involved."

It would be terrible to take the risk of selling a future for June 8th next, and then watch the market crash, only to find that one could not collect the winning bet because the broker or the exchange has gone bust.

If I sell 5 Bitcoins for $100,000, I would have to deposit a margin of $40,000. If Bitcoin doubles to $40,000 each, I would have to increase my margin to $80,000. Then if it falls, to 0 and the customers and brokers go bust, I might not be able to claim my $100,000 winnings. Worse still, I could lose the original stake.



Brendan
 
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I think if it jumped to $40k you would have to pony up an extra $100k. It's called variation margin. Basically the exchanges want you to pony up how much you would owe if you were to settle now (variation) plus an initial margin to cover conceivable daily movements. An initial margin of 43% is enormous and to be compared with 2% for the British Pound. It shows how unstable the exchange views the BTC price. It also means that the leverage is considerably reduced. You would be better off with an option which does not require margins - you simply pay the price upfront.
 
Agree fully on the option, but they don't seem to be available. So I have to content myself with small, short-term, high odds bets on Betfair which are just a bit of craic. I will have a lot of small losses before a biggish win.

That is disappointing about the futures contract. That is not really a runner either.

Say, I were prepared to lose $100k.
I sell 5 coins for $100k in June.
I put up $43k - fair enough.
The price increases towards $40 per coin.
I gradually put another $100k on the table.
Then the price hits $40 and I cash out with a loss of $100k.
I get my $43k back, but I have lost $100k.

And, of course, the exchange shuts down for the day if the price rises or falls by 20% which could mean that I might not be able to cash out at $40 per coin.



Brendan
 
Well no. Let's stick with FX futures. The main participants in FX futures are importers/exporters trying to match future revenues with future expenses. As with the spot market they do attract speculators and with the leverage they are more attractive to that constituency than spot.

I would say the spot BTC market is around 80% gambling, 19.9% hedge against Armageddon and .01% for transactions.

BTC Futures are 100% gambling.
 
Hi BK

"But this week, one or more people delivered 275 bitcoin (valued at $4.5 million at the time) to the LedgerX clearinghouse, and wrote one-year calls 1 at a strike of $50,000 ($13.75 million in total) against them for a premium of $3,600 per coin ($990,000 total). 2 These are real bitcoin, and there is no need for any sort of settlement auction, the call option buyer can exercise and receive the physical bitcoin."

So the owners of 275 bitcoins have given this guy the option to buy them for $50,000 each.

The owners get $1m cash now.

If Bitcoin crashes, these guys keep the $1m

If Bitcoin rises to $50,000, they keep their $1m.

If Bitcoin rises to $60,000, they keep their $1m and they sell 275 Bitcoins for undervalue, so they "lose" $2.75m (275 x $10,000), or $1.75m after the premium.

Bitcoin has to rise to $53, 600 for the guy who paid the $1m to win.

Brendan
 
I just received an email exchange between two bitcoin billionaires. Stolen from the desk of one.

BTCB1: Trading will be thin over Christmas, easy to drive the price.

BTCB2: Do we really want to drive the price up, I know that our unrealised gains would be even greater ? But won't it make realising the gains even more difficult.

BTCB1: What we need is an anchor for the price at some point in the future. If the unwashed think that the price is supported into the future they will be happy to keep buying. It will allow us to sell at current prices, without scaring off the populace. A way to take our billions off the table without collapsing the market before we are out.

BTCB2: How would we possibly do that.

Unfortunately the rest of the exchange was not seen.
 
I think that trading in futures on the CME must have been suspended today. It exceeded its 20% change limit when it fell to $10,800.



But it's not giving any message about trading being suspended.

Brendan
 
Brendan Burgess said:
Bitcoin has to rise to $53, 600 for the guy who paid the $1m to win.
Click to expand...

Not if he has lots of other bitcoin he can sell now at €10k or more each. He has got everyone looking at €50k in a years time, so obviously €10 now must be reasonable.

I think my previous may have been a bit subtle.
 
Hi BK
This shows the daily transactions :




When I posted earlier, there were 1,377 for Jan 2018 and none for June 2018.

I presume that they will reset to zero at some American time. Maybe early tomorrow morning Irish time. Not sure.

Brendan
 
Brendan Burgess said:
I will have a lot of small losses before a biggish win.
Click to expand...

For the first time ever you're showing me signs that you might have the ability to be a successful trader. Understanding the difference between gambling and trading is a prerequisite!
 
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