Read this proposal from Swedes central bank http://www.riksbank.se/en/Financial-stability/Payments/Does-Sweden-need-the-e-krona/Reports/
"What if the bitcoin rally is the prelude to the execution of one of the most obvious arbitrages in the market ..." https://ftalphaville.ft.com/2017/12/07/2196554/the-smartest-bitcoin-trade-in-town/ The smartest bitcoin trade in town? By: Izabella Kaminska Over the last week or so, we’ve recounted the problems with bitcoin’s market structure and how they are likely to impact the upcoming launch of bitcoin futures (here, here and here). In the course of explaining the structural difficulties, we’ve pointed out how the capacity of market makers and bi-directional traders to support the product is crucial if bitcoin futures are ever to become a success. Currently, this is unlikely to happen because there is no easy way to play both sides of the market without taking on huge amounts of credit, fragmentation, illiquidity and hacker risk on the physical side. As it stands, CFD and spread-betting houses are the ones mostly attempting to provide this bridging role. Problem is, even they are struggling to process the risk — and that’s despite being much less intensively supervised than the more established players who would usually be interested in servicing futures markets. Some sort of risk-absorbing entity, as a consequence, must appear if retail and institutional participants (who are used to fiduciary standards) are to step into the market in size. As a result, there are only three possible scenarios from here on in: The futures (plagued by illiquidity and non convergence with the underlying) flop. The lack of a market-maker redistributing one-sided risk back into the market will see the risk transferred elsewhere, most likely into the clearing house (to the risk of the entire trading community). A less established player with a greater tolerance for risk — possibly a natural long — steps into the fray. The third option doesn’t necessarily prevent the second option from playing out, however, given such an entity would still have to be serviced by the CME/CBOE clearing systems. Nevertheless, let’s imagine such an entity exists. What would its game plan be? And why would it think it could handle the risk? The easy answer to the second question is that it may have spotted an arbitrage it thinks could more than compensate for the risk at hand. As to the game plan… If you’re gunning to be the only entity in town prepared to sell bitcoin futures, it would be in your interests to start “pre-hedging” physical bitcoin as soon as possible with a view to locking in a risk-free basis return once the ability to sell futures on a regulated venue becomes possible. Ideally, the trade would require an average purchasing price that’s much lower than the rate bitcoin futures would eventually be sold at. To maximise this trade, as much value would have to be ploughed into the purchase (or generation) of bitcoin ahead of time, as likely buyside demand for the futures once launched. In terms of timing, due to bitcoin’s illiquidity, a “pre-hedging” position of this size would no doubt take time to put on. From that perspective it would make sense to start purchases as soon as a futures contract looked even remotely viable. FWIW, according to Factiva, the first serious clue CME was looking into a listing came in November 2016 when it launched a pair of indexes designed to track the virtual currency’s price. The CFTC’s decision in July to allow LedgerX to run a swap execution facility for bitcoin options, meanwhile, was a likely indicator a futures contract could be approved soon as well: Nevertheless, no matter how strategically planned, pre-hedging of this size is always bound to leave a market footprint. (Especially in a market as illiquid as bitcoin.) With that, the sort of self-fulfilling feedback loop that usually occurs when someone attempts to corner a market probably comes into motion. For many, sparking a feedback loop of this kind is often deemed a trading objective in and of itself. Not for a bonafide smart operator. The smart money understands a good trade is as much about executing the “out” as it is about positioning the “in”. You can start a pump, but you can’t always profitably orchestrate the dump. Hence why the futures component of the trade cannot be under emphasized. Without the certainty of a properly regulated marketplace defending the futures side of the equation, a payoff cannot be guaranteed. It’s why the arbitrage exists in the first place: the trade cannot be exercised elsewhere in the bitcoin ecosystem because the risk of counterparty default at the first sign of distress is far too great. You’d win the trade, but you’d probably lose the payout. If a regulated futures market takes that risk away, however, the trade becomes a no-brainer if not a mastermind opportunity. Which is arguably where we are now. Indeed — if such an entity does exist — only three possible risks that threaten the trade at this point: The futures launch is suspended unexpectedly, perhaps due to regulatory concerns or industry pushback? The anticipated futures demand never arrives because the margin costs of holding open long positions proves to be too great and/or liquidity is so shoddy nobody can trade effectively. The cash settled return on the futures leg, won’t necessarily be matched by the price achieved on the physical liquidation. One way or another, we will find out soon.
Hoi - As someone who seems quite knowledgable about bitcoin and been involved for years what are your thoughts on the following: - When forks occur they don't change the fact that there will still be maximum of 21 M BTC. Is this hardcoded or fixed in another way ? What they do is spin off a new coin which can be traded separately, it has different properties but the value tends to be less than the original for BTC and more for Etherium. Either way people tend to congregate to what is perceived as the best "store of wealth" (don't laugh at the back ;o) and it becomes a self full filling prophecy with network effects. - Origins of bitcoin. Being shutdown by governments is often mentioned as a risk. China and Russia have been most active in this area. Why them and not the US ? What are your thoughts on the origin of bitcoin and stories like this -> http://www.zerohedge.com/news/2017-06-12/exposed-real-creator-bitcoin-likely-nsa-one-world-currency
OK, I'm always willing to answer serious questions, but currently very busy as well (so will keep it as short as possible). By default a crypto currency lives in an hostile environment, thousands of actors with as many ideas and motives, some evil, some saints. It's the consensus of the majority who decides which direction is taken, which code updates and innovations are implemented. Actually all rules coded in the current Bitcoin software can be modified, if and only if the majority (including you and me) agree it's a good thing to do. Even the 21 M limit could, but I'm very sure no majority will ever do that: the incentives are too high. Once in a while (we have had about 5 minor and 1 major fork already) there is a considerable number of people (but much less than 50%) who decide to split off, and go their own way with some modification they believe it's the way to go, but is not accepted by the majority. Nothing stands in their way to do just that: copy the blockchain-history and run their own software code on it. A new Alt-coin is created, and any one who had coins in the copied history-chain, has new coins as well > everybody happy! In 2013 governments (especially USA) already analyzed the threat but also the huge opportunities this new FinTech industry could bring. They decided at that time it was best to regulate it in a way that the sharp edges would be solved without pinching off the innovation and job creation. But countries like China/Russia which have other agenda's, rather like to ban anything that hinders them. Not interested at all in who is the creator or conspiracy theories. Fact is that the current worldwide group of developers are the best in their field. Cryptology is rocket science and the best of them are working in Bitcoin on both sides: to hack it and the secure it. For 9 years already crypto-hackers are trying to unlock the $billions from this open-source code. And although it might be possible in future to find a temporary decryption (quantum computers?) it will never be able to unravel the whole blockchain and will be quickly or even preemptively solved by a software upgrade (not a fork).
when price is going up at 89 degree, spread increases. if you calculcate spread in percent (spread / btc price), it might look decent.
hope CME, CBOE, NASDAQ offers more btc derivatives like - BTC call / put options on futures - BTC VIX volatility index futures wonder if there are any other creative BTC derivatives like last day futures, TAS futures ...
One of the spreadbetting houses here in London has announced 0% overnight funding on short positions in bitcoin. Evidently must be trying desperately to offset all the customers' longs.