Given the fungibility challenges inherent to crypto currencies and the use of spot fx data pools of varying unregulated quality for pricing benchmarks my guess is that the settlements - especially at expiry, will be gamed and manipulated up the wazoo.
I think they will have to create a basket underlying... otherwise it's very easy to do an arb. Short futures and buy BTC.
I think the futures will trade way more efficient than bitcoin if trading picks up... futures might lead bitcoin. The volume that the futures will be able to handle is likely bigger than bitcoin, so it would make sense that they start leading and bitcoin lagging. There are plenty of index futures which lead the spot. Look at ESTX50... that book is often full with best bid and best offer of 1000+ futures. Thats a 37mln EUR bid and offer. If you would relate that to the underlyings... That's 750k per underlying on average. You don't see regular bids and offers of 750k worth across the board... and more if you go deeper. Same with SP500/ES... the size in the book of the future outweighs the size on the individual stocks... so usually it leads...
Will look like that ... definitely a possibility. Come to think of it... It might bring bitcoin back to earth. @bone, you trade spreads and commodity futures right? What's your thought of lead/lag? If you read me previous post... I think the futures might start to lead the underlying bitcoin, since the volume will start to go through the futures... at least, that's very possible. Especially since lots of people would like to trade it, but don't want to put funds in an unregulated exchange in China or wherever. So... more volume in the futures will lead the less volume of bitcoin. This would mean that the volume either has to pick up to take the lead again... Or... If mainstream Wallstreet thinks bitcoin is valued very rich... they would short futures and slowly put pressure on the underlying to expire low. Don't know whether they would want to put big dollars to work in those unregulated exchanges.. but I definitely can see that happening.
If I have the choice of trading bitcoin on a bitcoin exchange vs a futures contract, there is no way I would touch the bitcoin exchange (unless arbing of course).
In terms of “lead-lag”, my guess is that the futures would only become as prominent as you posit only on the condition that the buyer could take delivery - in other words, like other physically fungible commodities a futures buyer essentially buys from the futures exchange. This is not how the contract is currently configured - it is cash settled based upon pricing data input from several unregulated FX / crypto spot marketplaces. IMHO transparency will be a manufactured illusion. The ”lead-lag” you eagerly anticipate will certainly be there but unfortunately it will not be the effect you desire - there will be a manipulated artifact (illusion) at these unregulated crypto outposts making the futures an exploitation trap. The track record for new futures contracts - especially of this type of ilk (cash settled with notable transparency issues) is horrendous. Just look at the weather and insurance futures contracts. We called them “roach motels” after an old Raid bug killer commercial that had the tag line : “they can get in but they can’t get out”.
As you can tell, I have already started modeling arbitrage possibilities and the best (and safest strategy) would get me thrown in jail if I were to attempt it with a sovereign currency.
Futures arbitrage (and for that matter a successful futures contract) survives on a robust basis component. As far as I can tell, the bitcoin cash to futures basis is imho a bit dodgy (polite) as is currently being floated by CME.
To start with an aside, how do you manipulate the weather again? Do we have guys renting planes to see clouds with silver iodine? They will certainly have to put procedures in place that require the unregulated exchanges used to determine the index price to open their books to regulators. Nadex actually had a binary options contract on bitcoin for a period of time that was approved by these same regulators, so you can assume that the anti-manipulation measures they had in place, which included what I just mentioned, would also be in place for a CME product. One does wonder if Nadex canceled the bitcoin product due to lack of interest or actual issues. Since it was during one of bitcoins down periods and they never had much volume I always assumed it was lack of interest and their market maker (which I think was only their subsidiary on that product) didn't want to support it any more. Will be interesting to see if they try to bring it back now.
If you had read my post more carefully before replying, you’d realize that I addressed the weather and insurance futures problems as wholly liquidity related in a separate paragraph citing manifold problems with previous futures contracts rollouts.