
CBOE Will Start Bitcoin Futures Trading on December 10 - pdog
https://www.bloomberg.com/news/articles/2017-12-04/cboe-says-it-will-start-bitcoin-futures-trading-on-dec-10
======
chollida1
I think these futures will do a few things for bitcoin.

\- 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.

~~~
JumpCrisscross
> _these futures will do a few things for bitcoin_

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.

~~~
malloryerik
Unless the volatility were to go down in the extreme, nobody has any business
borrowing or lending in bitcoin. I'm sorry but it's absurd, unless done as
speculation.

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.)

~~~
smokeyj
While I believe other coins will inevitably be better suited for handling
transactions than bitcoin, bitcoin may end up being the best store of value
due to the amount of liquidity it has. Because of this bitcoin tends to act as
the gateway to alternative currencies/tokens. It seems like a weird self-
fulfilling prophecy.

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.

~~~
notyourday
Bitcoin is as liquid as a mattress industry before Casper.

------
KasianFranks
I'm a fan of Bitcoin but here's the truth (source: me, I ran a public
company): The real boon here is for new cryptocurrencies as opposed to Bitcoin
as it will experience naked shorting resulting in artificial 'sell pressure'
from large institutions and hedge funds due to these futures contracts.

In other words, you can take out a large short position without needing any
fulfillment while at the same time it factors as 'shares short' against
Bitcoin. 'Shares short' is a major component used by institutions to calculate
or re-price to the downside and when these numbers are inflated that can
result in inaccurate pricing for the benefit of the manipulator.

There are plenty of examples of this and one of the most high profile cases is
related to OSTK (Overstock):
[https://en.wikipedia.org/wiki/Patrick_M._Byrne#Campaign_agai...](https://en.wikipedia.org/wiki/Patrick_M._Byrne#Campaign_against_naked_shorting_and_analysts)

It's a high-level form of manipulation. This will also reduce Bitcoins
volatility and opportunity for large gains in short periods of time.

Of course the reverse is true if institutions want to battle it out on the
short and long side but meanwhile the banking divisions of investment banks
(JPMorgan et al) remain scared to death of Bitcoin. Ultimately, Bitcoin will
have to have more institutional allies and supporters than the worlds banks
(banks hate Bitcoin, it makes them irrelevant in the near future) which is
quite possible.

New cryptos with low floats (low circulating supply) won't be affected as much
thereby offering larger gains in shorter periods of time which will attract
more of the typical cryptocurrency day traders and traditional traders.

More on this here:
[https://news.ycombinator.com/item?id=13844765](https://news.ycombinator.com/item?id=13844765)

~~~
bobcostas55
That's not how futures work. For every long futures contract there is also a
short one, the net position is always zero. There are also no shares involved.

~~~
KasianFranks
"The Truth About Naked Short Selling"
[https://www.investopedia.com/articles/optioninvestor/09/nake...](https://www.investopedia.com/articles/optioninvestor/09/naked-
short-selling.asp)

"The basic form of short selling is selling stock that you borrow from an
owner and do not own yourself. In essence, you deliver the borrowed shares.
Another form is to sell stock that you do not own and are not borrowing from
someone. Here you owe the shorted shares to the buyer but "fail to deliver."
This form is called naked short selling. These short sales are almost always
done only by options market makers because they allegedly need to in order to
maintain liquidity in the options markets. However, these options market
makers are often the brokers or large hedge funds, who abuse the options
market maker exemption. (For more, see How To Work Around A Market Maker's
Tricks.)

Shorting Without Failing to Deliver There is another form of short selling,
which I describe as synthetic short selling. This involves selling calls
and/or buying puts. Selling calls makes you have negative deltas (a negative
stock equivalent position) and so does buying puts. Neither of these positions
requires borrowing stock or "failing to deliver" stock.

A collar is nothing more than a simultaneous sale of an out-of-the- money call
and a purchase of an out-of-the-money put with the same expiration date.
Another way to short sell is to sell a single stock future, which is
equivalent to naked short selling. No shares are borrowed, however, and no
shares are failed to deliver..."

"... There are similar future transfers if you have sold calls or sold single
stock futures. When you buy puts and fully pay for them, there are none of
these money transfers after the purchase, although the value of your account
certainly fluctuates as the value of the puts fluctuates.

All of the above ways to obtain negative deltas cause pressure on the value of
the stock similar to how straight sales of long stock puts pressure on the
price of the stock..."

Continued via the link above which is well worth the read. All things
considered, we are ultimately talking about derivatives and derivatives of
derivatives.

~~~
swyx
Good for you that you ran a public company, and you may well be right on the
boon for altcoins bit, but please know you are incorrect in relating options
and shorting to futures trading. Please try to seek first to understand and
only then to be understood.

source: cfa, sellside and buyside trader.

~~~
KasianFranks
I don't think you understand how options/futures can be used to create
artificial 'sell pressure' and in conjunction with the DTCC and CapitalIQ. You
should research this.

------
stfwn
I feel like I must have a misconception about bitcoin. Coins are earned by
calculating hashes for transactions. As the amount of coins grow the
difficulty of calculating hashes increases. This limits the creation of new
coins, which increases the scarcity of coins and thus their value. This keeps
the incentive to mine at a more or less steady level, thus sustaining the
network.

But.. Why spend something that is guaranteed to become more valuable? If I had
something in my pocket that I knew would become more valuable by systemic
necessity, I’d save it as long as I possibly could. Doesn’t this completely
undercut the idea of bitcoin as currency?

~~~
notyourday
It won't. Bitcoin is a fad. It will run out of fools and when it does there
wont be a way out.

Let me illustrate it on a very simple scale. There are four participants in a
market. Each one starts with 100 coins and $100 USD. Each coin is valued at a
dollar. Minimum units are 1 coin and 1 dollar. What is the maximum market
value?

The correct answer comes from a single pre-final stage:

One person has 400 coins another person has 400 USD and the other two people
have nothing. At this point the person with 400 USD pays $400 USD for 1 coin
giving all 400 coins value of $400 each i.e. $160,000, except there are no
$160,000 in this market.

~~~
H99189
Far too simple of an analogy. First there is competition between miners so
there's never going to be a single source, plus there are millions mined
already in the pool. Also, bitcoins are currently divisible to 8 decimal
places but that can be changed as soon as it's needed.

It's quite possible in 20 years that 0.000000000001 of a bitcoin will make the
average house payment and by then, we'll have friendly names for all the
decimal places.

~~~
659087
> It's quite possible in 20 years that 0.000000000001 of a bitcoin will make
> the average house payment

No, it isn't.

~~~
hndamien
Thats a bold claim given the history.

~~~
659087
No, it isn't.. and I sincerely hope you're joking.

You should do the math on that and figure out what the value of a single
bitcoin would have to be to make it come true. If that doesn't wake you up to
how ridiculous that claim is, I don't know what to tell you.

I'll even go incredibly easy on you and let you assume the average mortgage
payment is only $100.

Hint: it's a number larger than the US GDP

It's somewhat terrifying to me that I even have to argue this with someone.

~~~
hndamien
OK, I didn't do the math. Thanks for the correction :). Turns out - lets
ignore your generosity there, that we are realistically talking around 1000
trillion. National debt is at like 14 trillion. Chinese M1 money stock is 7
trillion. Now at the current growth rate, which is unreasonable to continually
sustain, could continue to be high for a while, and you can't ignore the
incredible growth of the global narrow money stock -
[https://data.oecd.org/money/narrow-money-m1.htm#indicator-
ch...](https://data.oecd.org/money/narrow-money-m1.htm#indicator-chart) (10x
in 15 years - 62x for Turkey in 20 years!). So I'll agree with you, highly,
highly unlikely - but not at all beyond the realms of possibility - given what
appears to be highly improbable (yet predictable history).

------
rkagerer
My thoughts on Bitcoin futures at CBOE and CME:

\- Unlike LedgerX, the futures will settle in cash, NOT in Bitcoin. So they
won't _directly_ create demand for more Bitcoin.

\- In effect this is a "bookie pool" for institutions to place side-bets on
bitcoin. Although there might be some consumer participation - I reached out
to several CME brokers and at least two of them, NinjaTrader (US) and RBC
(Canada), intend to provide the futures product to their retail investors
(pending internal review).

\- Biggest customers will probably be institutions who want to short (bet
against) Bitcoin, and those who want to establish a long position (bet in
favor of it) but are prevented from buying bitcoin directly (due to
regulations, security / handling concerns, etc). You would think the CME trade
throttling rules in particular would make buying the asset directly a more
attractive option for those who want to go long and have access to other
marketplaces (i.e. existing exchanges). For that reason, after the initial
"rush" to get in, I think there's a risk the CBOE and CME markets will tend to
attract more "shorters" than "longers".

\- Naked shorts (placing short orders for assets you don't have and don't
intend to buy) are an interesting aspect which I don't fully understand. I
think the practice is illegal in US securities, although one of the exchanges
from which the CME price index will be derived (Kraken) apparently already
allows naked shorts (surprised that didn't catch the eye of regulators).

\- A lot of the money in Bitcoin today is retail. Are those folks ideological,
or easily spooked? (Probably a mix). What happens if folks start seeing red
futures around the corner? Is there a risk the futures indices (with their
more-disciplined institutional money) will start leading (rather than
following) the Bitcoin price?

While I'm excited by this development (obviously a lot of great PR) I'm
concerned there might be risk of it backfiring compared to the overly
optimistic expectations I've been reading from existing Bitcoin holders. I
really do hope it paves the way to ETF's (where you actually buy a basket of
Bitcoin) - something I'd be a lot more excited for. In the meantime, here's
hoping my cautious skepticism is unwarranted.

There's some good discussion over at Quora: [https://www.quora.com/How-will-
futures-trading-on-CME-affect...](https://www.quora.com/How-will-futures-
trading-on-CME-affect-the-Bitcoin-price)

------
rb808
Will be interesting to see how closely these track BTC, both initially and in
times of stress.

BTC is difficult to short so if/when there is a sharp decline in price you
have to rely on people buying futures instead of BTC outright. I suspect this
isn't going to happen so on price declines the futures will fall further than
BTC, also leading to bigger crashes in BTC.

Maybe that is a good strategy, wait for some weakness and sell the ____out of
it to see how far it crashes.

~~~
wpietri
Could you say more about why you think the futures would crash further? My
understanding is that these are cash settled, so this isn't like a normal
commodities market where you actually have to deliver the underlying.

~~~
rb808
That's the interesting part we're going to find out.

Yes they're cash settled on the expiry date so on the 3rd Friday of the month
the future that expires that date will have the same price as BTC.

When there is time to expiry though, what is the mechanism that keeps the
prices aligned? If BTC is difficult to short natively, there isn't an easy way
to keep the futures at fair price.

IE if BTC is worth 10k and someone keeps selling futures down to 9.5k, why
would BTC drop? Only if a buyer chooses not to buy BTC but buys the future
instead. But if the future keeps dropping those guys will get scared off.

The real thing is no one knows so we'll find out soon if/how this will work.

~~~
solotronics
the cash settled futures market is more like you betting your neighbor $100
that the price of BTC will rise by a certain date. the futures exchange acts
as the bookie and just exists to track the BTC price on the crypo exchanges
and settle the futures contracts ( bets ).

~~~
kgwgk
But the bet is open to anyone and, as the parent said, if the future is much
cheaper than the real thing the people who want to get exposure may use the
future (removing demand from BTC) and if the future is much more expensive
arbitrageurs will sell futures and buy BTC at the same time (adding demand).

------
banderman
I like how everyone has moved on to ignoring the fact that 5-10% of all
Bitcoin are controlled by an unknown party. Would this be acceptable in any
other currency? [https://bitslog.wordpress.com/2013/04/17/the-well-
deserved-f...](https://bitslog.wordpress.com/2013/04/17/the-well-deserved-
fortune-of-satoshi-nakamoto/)

~~~
nowherecat
I was just saying this to someone. ~4% Control ~95% of all bitcoin. Could
anyone explain to me how this is acceptable? Why buy a currency that is
worthless without electricity and where the wealth is so unevenly distributed?
I’m curious. To me that’s already two good reasons to stay away. Am I missing
something?

~~~
monort
Would you use a currency where 10% every year (not once) goes to a relatively
small number of banks?

USD M2: [https://tradingeconomics.com/united-states/money-
supply-m2](https://tradingeconomics.com/united-states/money-supply-m2)

------
xutopia
Will this have an effect on the price of BTC? Anyone have any idea or can
speculate as to what happens on December 10th?

~~~
mxwsn
I found this article helpful:
[https://www.bloomberg.com/gadfly/articles/2017-12-04/bitcoin...](https://www.bloomberg.com/gadfly/articles/2017-12-04/bitcoin-
s-diverse-futures-contain-buyers-and-sellers)

tl;dr:

\- Increase access to btc (futures can be more liquid than BC itself, which
has large transaction costs and transfer times)

\- Probably reduce price volatility in general, but futures could also
compound speculation

My guess is that BTC will rise in price, and I think the recent price
increases are partially explained by the news of future markets.

------
sheeshkebab
I wonder how long before bitcoin gets banned by us gov completely (or at least
conversion to/from usd by us banks).

It seems like this thing is ripe to create either some systemic financial
crisis or help governments of countries that are not exactly allied with us
interests (china, dprk etc).

~~~
uncoder0
Couldn't someone just publish a print version of the source code and
whitepaper and it'd fall under the First Amendment? I believe this was done
for PGP
[https://en.wikipedia.org/wiki/Pretty_Good_Privacy#Criminal_i...](https://en.wikipedia.org/wiki/Pretty_Good_Privacy#Criminal_investigation)

~~~
elif
You can publish a book on how to grow marijuana. They can still make using the
book illegal.

They can even make using PGP illegal, and there are politicians trying.

~~~
mancerayder
Huh? There are all sorts of such literature available legally. The US
government does not (in 2017 at least) ban these things.

Unless you have a recent example?

~~~
elif
My point is that while the literature is available, implementing its content
is still a controlled action.

For a reference, I mentioned your example of PGP, which would be made illegal
to use under this proposed law [https://www.scribd.com/doc/307378123/Burr-
Encryption-Bill-Di...](https://www.scribd.com/doc/307378123/Burr-Encryption-
Bill-Discussion-Draft)

------
ckastner
Imagine the margin call you're going to get whenever the market swings wildly
against your direction...

I assume that most interested parties will use these for hedging purposes, but
there's bound to be a few poor souls out there waiting to use these for
speculation.

~~~
scurvy
Since these are cash settled futures, a large move up may have the unintended
consequence of generating more selling pressure. If you're hedging a long BTC
position with futures, you could run short of cash required to maintain the
position. Thus, you would sell BTC to get USD. If this were a BTC settled
contract, you would just hand over the BTC at delivery.

Since these are USD settled, futures might put a damper on the rate of
increase.

------
ShabbosGoy
I’m curious as to how they’re planning on tracking price of the underlying (in
this case BTC itself).

Could be a great opportunity to arbitrage based off of price desync across
exchanges.

------
scurvy
One thing this does is create preferential tax treatment for short term
bitcoin trades. These are section 1256 contracts, so instant 60/40 tax split,
vs 100% real income tax.

You'll see some institutions move away from the BTC/USD market for this
reason.

------
jeff7289perrin
I am wondering if anyone has been in contact with a brokerage that is going to
list the Cboe futures when then 'go live' on Sunday. I haven't spoken with one
that hasn't said 'we'll wait and see'.

------
swarnie_
Bitcoin is a currency right? Where is the Forex level leverages being offered?
We need to speculate on bitcoin with 100:1 or 200:1 to really get this bubble
expanding.

Failing that, ill settle for a x3 ETF

~~~
Uw7yTcf36gTc
your tone makes it sounds like you are being sarcastic. in case you weren't,
you can do 100x leverage here: [https://www.bitmex.com/?lang=en-
US](https://www.bitmex.com/?lang=en-US)

------
jes5199
it has recently come to my attention that Darknet vendors now prefer Monero
over Bitcoin - it's more anonymous, and transactions are (currently) faster. I
don't know if that means anything long-term, but Darknet was the first place
that had a lot of Bitcoin adoption. It's currently very difficult to buy
Monero with cash, typically you buy Bitcoin and exchange it for Monero on a
secondary exchange.

------
cs702
With every passing year, more and more financial products and services are
being created around Bitcoin: futures, ETFs, swaps, and so on.

These products built on each other: the ability to hedge with futures will
enable the creation of additional Bitcoin products and services, entangled
with each other in complicated financial networks.

Regardless of what you think about it, Bitcoin is slowly but surely becoming a
PERMANENT component of the world's financial infrastructure.

It's not difficult to imagine a future in which having some kind of Bitcoin
exposure in a portfolio becomes conventional wisdom.

~~~
debt
That seems dangerous akin to ‘08. Crypto in general isn’t being used for much
relative to its current hypothetical value.

It’s being propped up by a few huge investors. Once those investors have
tripled their investment and grown bored speculating, they’ll move on, and
there’ll be a run on crypto driving its value through the floor.

So any exposure through retirement accounts or other investment products seems
really dangerous.

But idk

~~~
pilsetnieks
> Once those investors have tripled their investment and grown bored
> speculating

Can you point out to any example in history where an institutional investor
has gotten out of investing because they have grown bored, and the profits
they have are enough for them?

~~~
debt
no but I imagine large funds change investments many times over their lifetime
particularly in its riskier allocations.

funds are usually made up of larger contributors so while idk of an investor
that’s grown bored there are plenty of examples of funds offloading
investments for other financial products

------
kpga
A lot of money has been made on the way up. And a lot of money has to be made
on the way down. But for that, some more pumping is needed. HODL.

~~~
magicfoxs
Agree, futures volumes need to be massive for short manipulation to be viable

------
blibble
it will be interesting to see how they determine the settlement price

my prediction: huge amounts of bogus trades every day to manipulate it

~~~
Uw7yTcf36gTc
CME will be using Bitcoin Reference Rate (BRR). I don't believe CBOE has
published how they will do theirs. [http://www.cmegroup.com/trading/cf-
bitcoin-reference-rate.ht...](http://www.cmegroup.com/trading/cf-bitcoin-
reference-rate.html)

------
down
I had trouble understanding bitcoin myself, and therefore stayed away from it,
but what made me understand it, if shinny metals and compressed carbons pieces
have huge markets, eg. gold has a cap of 7 trillions and bitcoin is just 150
billions, and just work why bitcoin would not also work, even when you buy
gold jewellery or diamonds, in the back of your mind is the resell value,
(hedge against inflation), not that they look much better than a fake, or the
coated version.

Maybe in US inflation isn't a problem but in my country until a few years 7%
inflation was low, although maybe the official inflation is low, but as far as
I know asset prices have gone up due to quantitative easing.

~~~
mxwsn
The rub is in "gold just works". It doesn't just work, there are reasons it
has retained value for so long and reasons it might not forever.

The intrinsic value of USD is it's the only currency you can use to pay taxes
to the US government. The intrinsic value of gold is its industrial/commercial
uses. The intrinsic value of bitcoin is a nearly incorruptable transaction
ledger while also being trust less.

None of these things "just work", some or all will fail eventually.

~~~
FLUX-YOU
>The intrinsic value of USD is it's the only currency you can use to pay taxes
to the US government.

This isn't intrinsic value. The government can conceivably decide USD is
worthless (it won't, probably ever, unless the US collapses). USD relies on
the US government for value.

Being able to burn money to start a fire would be intrinsic value. Same for
gold's conductivity and its other industrial uses. They are physical
properties.

~~~
DSingularity
I think its a stretch to say that the US gov will decide USD is worthless. So
the expected intrinsic value is as he stated, the power of the US government
to levy taxes. I would also include the domination of the USD in oil trade as
another intrinsic value.

~~~
paulgb
Intrinsic value is a term with specific meaning going back to the days of
commodity money. I don't disagree with your point, but by definition the
things you mention are not intrinsic value in the monetary theory sense.

------
isolli
I wonder what the source of Bitcoin's price will be for settlement, and more
importantly whether it will be immune from price fixing.

One thing we know is that you can't trust market participants:
[https://en.wikipedia.org/wiki/Libor_scandal](https://en.wikipedia.org/wiki/Libor_scandal)

------
sschueller
I wonder how this all will work with such huge transaction delays.

~~~
kss238
They're trading futures not bitcoins directly.

~~~
shortoncash
This doesn't matter. The HFT arbitrage guys (if they haven't already) will
move in to bring the other components of the fragmented market inline. This is
just a natural progression with markets becoming more efficient.

------
karpodiem
Are CBOE and CME are providing liquidity (fulfilling buy/sell orders) or are
they simply operating a pool where traders bring their own positions and act
as a settlement platform between participants?

How can they grantee 'legality' of the coins being traded by those
participants in the 2nd scenario? Let's say then the coins being traded in the
2nd scenario are identified by the IRS as 'bad coins' \- will they freeze the
coins held by that account until the legal dispute is settled?

How can you grantee the legality of coins in an option contract if the coins
held by one party prior to the contract expiration are seized?

I'm very curious how they're going to handle these scenarios. Personally, I
wouldn't trade on this.

~~~
wpietri
It's cash settled. No actual Bitcoins change hands:

[http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-
futures](http://cfe.cboe.com/cfe-products/xbt-cboe-bitcoin-futures)

This is not unprecedented. If you look at weather futures, for example,
nobody's going to want to take delivery of a petagram of cool air. Or think
about index futures: who wants to receive 1 share of 500 different stocks at
settlement time? When the underlying commodity is hard to work with and people
still want to gamble^W hedge their risk, cash settlement solves plenty of
problems.

That makes sense here. People who need wheat or steel to run their business
and want to lock in prices might buy futures. But approximately nobody
actually has a business need to deliver 1,000 bitcoins in February. At best,
they might want to hedge some sort of risk. But more likely, it's straight up
speculation from people who don't care about Bitcoin as such, but just want to
get in on the action.

~~~
karpodiem
Will CBOE offer the ability to accept coin delivery in this market?

~~~
lurker456
no, it is cash settled only

