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Call options used to bet that Bitcoin will go over $50K next year (wsj.com)
100 points by nvk on Dec 21, 2017 | hide | past | web | favorite | 150 comments

People writing those article should know better, it's the wall street journal for god's sake. Buying a call option doesn't mean you're bullish that the future is going to trade up to that point. It could be a hedge for a short position or a way to go gamma-long or a way to make a structure cost-less, or really some other trading idea.

The point is that if the price goes up, the call option price goes up faster, and then the trader can sell it before it reaches 50k. Liquidity though may be an issue.

EDIT: what matters is that it is _possible_ that bitcoin goes to 50k next year. And since it is possible, people need to take that possibility into account in their strategies. It's like S&P option strike range for dec18, it goes from 1700 to 3100. Is it likely that SP price goes down to 1700 in the next year? no, but it's certainly possible.

A call option also means someones else took the other side of this trade. Who sold $1 million dollars worth of December 2018 Bitcoin $50K call options?

Also there's a back of the envelope implied volatility for Bitcoin here: on a $3k call option premium 12 months out (so breakeven on this "bet" is actually $53,000) Bitcoin implied volatility of around 120%? Not that equity option pricing model theories apply to Bitcoin, or even work as expected on equities for that matter, but it's interesting to see an implied volatility number regardless. Looks like Delta less than 10. With Futures already 3 months out at $17,000 it would seem like whoever sold this call option for $1 million could hedge (not perfectly hedge) the trade for less than $1 million. Oddly enough, both the buyer and the seller could end up profiting on this option trade.

I agree this article is very bad, it feels like a paid PR article advertising for the trading company not actual news.

Someone who's already long a ton of bitcoin could write those calls without adding any risk, collecting a little bit of yield and sacrificing only the extremely-far-out-of-the-money potential upside of $50k+ on his long bitcoin.

The implied volatility at which this option traded is pretty irrelevant for helping us understand the option market as a whole, since it's so far out of the money. We don't have much information about what the upside skew would look like. And due to vanna, that delta calculated off that implied volatility is irrelevant too.

You're right. And I agree, the missing info about the contracts and the overall derivatives market here plus the expiration and strike being so far away makes calculating IV or delta or vega or convexity or well calculating anything pretty irrelevant and has little to zero practical use.

Plus we are talking about Bitcoin! so none of this is relevant. The old option theory bullshit has even less rigor beyond fun mental exercise. I still think it's interesting and gota start somewhere, and we'll see how things develop in this market. I did try to qualify in my comment writing something how calculation not really applicable to Bitcoin and doesn't even work on equities properly. But again you're right and I should have worded my comment differently, probably a bad lazy old habit to even use weird finance terms on non-finance forum like HackNews, so maybe could have said something like 'wow interesting to see someone paid 20% of the current price for an option with a strike that has bitcoin gaining +200% in the next 12 months'?

I would guess this is some sort of covered call as you suggest. It's only 275 bitcoins and a 20% premium on the spot price seems like a decent yield for so far out the money. I'm not a bitcoin trader but it's my understanding from what I've read there was no short side price discovery until very recently when derivatives started trading so volatility has no historical nor frame of reference. Bitcoin options could be super inexpensive deal right now or way overpriced there's no basis to say either way but there does seem to be enough inefficiency across various markets for arbitrage if someone wants to make the effort.

> The old option theory bullshit has even less rigor beyond fun mental exercise.

Well, it actually tells you how to hedge and thus replicate the option. That's quite valuable in practice (even if it needs modification from pure theory), despite Taleb's rants.

Hedging is a valuable practice. But my point was the old option modeling, Black-Scholes for example, doesn't work in Bitcoin markets: firstly because Bitcoin markets don't have the same structure or offer the same inputs as equities markets. And secondly because equity option theory doesn't even work in real world equities if we're being honest. Options do a decent job as rough short term guidelines for hedging and replication, in a few corners of the market that have gained enough efficient liquidity in options (such as large indexes and small number of single names) but hedging beyond there is an active challenge. One obvious sign maybe that option models don't work so well outside of their assumption-filled theory is how the options market makers still need so many humans involved in subjectively managing the risk on their books every day - if a theory and its models are strong and "tells you how to hedge" why can't computers calculate the next move and hedge risk with a click of a button automatically? Hedging in bitcoin would be questionable (if not laughable) right now, you can still do it of course and maybe shoddy guess hedging is better than nothing? But what's a fair price for bitcoin insurance over the next day, month, year?

The problem is that the volatility of BTC should be priced off tail risk more than gaussian drift, and that's not a rigorous part of the theory. Black-Scholes certainly doesn't characterize the tails very well.

Nice comment, you seem like you know your stuff. My opinion is without fundamentals or historical or correlated assets here you can't price tail risk beyond throwing a dart. Look at the Futures margin reqs, it's like 40%. A ridiculously high number and that's probably still a compromise because they halt trading for the day around 20%, otherwise I imagine there would be almost no margin given. Price of tail risk is not being priced.

Given the realized vol of bitcoin, 50k is not very far out of the money. Bitcoin doubled between end of November and mid December. And it's 20 times the value it was a year ago...

> I agree this article is very bad, it feels like a paid PR article advertising for the trading company not actual news.

The number of times LedgerX was mentioned made me suspect that immediately.

Their volume is abysmal. Nobody trades there. They know they're missing out, and they know they're running out of time before the Bitcoin craze is all over. They'd like to make some money before that happens.

Though to be fair, going long a call is fundamentally a long delta (=bullish) trade on the stock (unless you hedge, in which case it's long vol)

You are right. its most likely a exotic call option.

Click bait!

WSJ is owned by Rupert Murdoch now. https://en.m.wikipedia.org/wiki/The_Wall_Street_Journal

A single call creates yet another far-fetched mass media piece to convince unsuspecting fools to spend their money pumping up the bubble. And so the pumping continues. The more far-fetched the story, the closer the burst is.

$50k is not really that far fetched... Bitcoin tripled in value so many times already, what's one more time?

Yeah, no one can accurately predict market futures. It's probably only absurd in retrospect if it doesn't come true. But there's no math that says it's unrealistic, especially with faith based currency.

The is all currency, when people stop believing in a currencies value the exchange rate drops no?

it's not the same if there is an army and a tax collector that help you 'believe' in a currency.

> when people stop believing in a currencies

That's a foolish comparison. Public servants are paid in the nation's official currency. Do you believe employees just forget about their salary? And I won't even talk about taxes and supplying the state with goods and services.

Equating these so called "cryptocurrencies" with cash is simply idiotic, and something that only serves the agenda of those personally invested in defrauding the world while pumping the bubble.

Faith based currency is a different beast. Money like silver coins can have utility beyond their exchange rate. For example, melted down and used to produce a physical item. You can't do that with paper money or a cryptocurrency.

The utility of silver could still drop, but it's much less likely than someone deciding that a piece of paper or a token in a ledger is essentially worthless.

That said, faith based money can skyrocket in value if everyone believes in it.

Also, you have to pay your taxes in faith based money.

> $50k is not really that far fetched...

No, it actually is a ludicrous bet. No rational investor would ever make this investment. The absolute max value stands at less than a third of that. This sort of call only makes sense if it's designed to manipulate fools into a buy spree to supply liquidity to mask a massive cashout.

> Bitcoin tripled in value

Ah yes, and lightning will certainly hit the same person again and again.

Do you happen to have any money on bitcoin by any chance?

The great thing about having a real futures market available is that when you’re 100% certain that you’re correct, as you seem to be, you can put your money where your mouth is and reap a big reward.

How many of these call options have you sold? And if the number is zero, then what are you waiting for? Why not take advantage of how much smarter you are than all of these sheep and make some easy money?

The market can remain irrational longer than you can remain solvent.

(attributed to John M. Keynes)

Yes, but he said “ludicrous bet” that no rational investor would make.

As a rational investor/gambler, when I hear that someone is willing to make a “ludicrous bet”, I’m happy to book their action.

So there’s zero leverage across the ecosystem, not withstanding bucket shop margin at fly by night exchanges, and you think you can call an absolute maximum?

This is the only bubble WITHOUT credit and institutional leverage so far

I would take the opposite side of your bets, there simply aren’t enough whole bitcoin units for even every schmuck with a million dollars

Wake me up when crypto ventures are built entirely on rehypothecated assets in the crypto ecosystem, and Morgan Stanley is leveraged 5,000% again

I think all that money you are talking about will go into other coins. https://medium.com/@mkogan4/four-predictions-for-crypto-five...

> No, it actually is a ludicrous bet. No rational investor would ever make this investment.

Do the math: Given the extreme volatility (https://www.bitmex.com/app/index/.BVOL) of Bitcoin that price is not unreasonable for that call per conventional means of valuing options.

And every party that is long bitcoin and who isn't selling that position is implicitly taking that position as well: in the sense that, at least in theory, they could also sell those calls but have not (yet). Or perhaps your argument was that no rational investor would own Bitcoin at all? :)

Take a look at Bitcoins historical prices. I call what we’re experiencing right now the “Third Rise.” At the beginning of each, I thought there was no way the price would double or triple. Yet each time it did. I’d suggest if looking at history before you make such strong statements about Bitcoin’s price possibilities.

Is there any price, any price at all, where you would say “bitcoin is not worth this much, I should cash in before it goes down”?

Σ(all bitcoin) = 0.1% world money supply? 1%? 10%? 100%? Even more? At some point it will go down. If you have a rational model for what value is too high, great! But if you don’t, you’ll gamble yourself into poverty, like so many other speculators over so many centuries.

I think a fair market cap target to work with is $7.7 trillion market cap for all of bitcoin. This probably seems high but there are a lot of lost bitcoins.

This is 27x the current market cap so if the current price is $16704 a good target is $451,008. Prices above that would seem excessive to me.

I shared some of my reasoning here: https://news.ycombinator.com/item?id=15840591

You are not going to get 1000x higher prices than the current price, my opinion. It's not justified. On the other hand, 3x, 5x and so forth prices are easily justified given what bitcoin "is" and the role it can serve. This remains so even if transaction prices are very high, the blockchain is very slow, and there are more liquid and easier alternatives. This is because bitcoin serves as a kind of "gold" for various usages of that term. The only difference is that when you hold a piece of gold in your safe, there is no physical possibility that due to a coding error in the fabric of the universe, it disappears from your safe.

However there is a very large possibility of bitcoins disappearing entirely, due to a coding error. It is very important to hedge against this or account for this possibility.

The average transaction fee was more than $40 today¹. I think a transaction fee of more than $1000 could be a problem.

I also believe that the bitcoin core developers have painted themselves into a corner where (urgently necessary) hard forks are super hard. Every hard fork by them will have a huge risk of a group of people staying on the old branch and calling themselves "the true bitcoin" and the forked instance a "shitcoin" or "altcoin" or "not the real bitcoin".

Thus, unable to change and adapt, bitcoin is likely to stagnate and eventually die.


¹ according to https://bitinfocharts.com/comparison/bitcoin-transactionfees...

I don't see any problem with any transaction price around the prices you're talking about. (Obviously if it were millions of dollars per transaction that would be an issue.)

Storing or transporting any amount of gold must be ridiculously expensive and inconvenient security-wise.

The transaction fee always applies, even if you are trading $1 worth of bitcoin. I guess you didn't know that.

With a transaction fee of $40, trading less than $2000 worth of bitcoin at a time gives you a rather high percentage of fees of more than 2%. You couldn't even buy most flights with bitcoin.

If we wanted gold bars, we would use gold bars. One of the fundamental ideas behind a digital currency is that it's cheaper and faster to transfer than physical goods/physical money.

You get a gold certificate not gold bars.

Please excuse my ignorance - how does that not translate to Bitcoin? i.e. why is that not a possibility, if Bitcoin is worth $400,000+ per bitcoin, but transaction fees are very high? What stops credible institutions from making bitcoin certificates? Genuinely curious, I'm not sure what your answer will be.

Nothing stops anyone from doing that. But you’d now have a 3rd party saying you own the bitcoin but your ownership is not recorded in the blockchain. So do you really own it? You could get fancy and issue another cryptocurrency backed by bitcoin too. I think the recording keeping just gets difficult. There are also forks of bitcoin to introduce lower fee and faster transactions but who knows if they will take over. For bitcoin to continue you need miners to validate transactions and they will only do so if it makes economic sense.

The essential property of bitcoin versus every other currency is that in an essential way it is deflationary: there are only so many bitcoins. It's not minted by fiat.

This is the essential property it shares with gold. So if we use worldwide gold market cap to set some kind of standard, why shouldn't we use certificates as is used for gold?

By the way, again excuse my ignorance, but what keeps gold certificates from being inflationary? Why can't Goldman Sachs physically own 100 gold bars, and sell me a certificate for 50, you a certificate for 50, and Tom a certificate for 50? Where is the limit? After all, they have enough money to buy gold on the market even if you, I, and Tom all ask them for the physical gold at once. What keeps them from inflating gold certificates out of thin air?

Nothing stops the except the law. What they are doing in your scenario is fractional reserve banking. They could create more "money" in this case up to whatever leverage limit they would be allowed by law. So at some point your gold hits a max value and your economy can't grow beyond that point. This causes deflation. As far as I understand it deflation means that something that cost $5 now costs $2.5 in real terms. However, producing that thing may still cost $3 so unless you've made productivity and efficiency gains you are losing money. More importantly there is no incentive to spend money today because your money will buy more tomorrow. So then you only buy what you absolutely must.

thanks, this was interesting.

Your analysis seems very reasonable, but John McAfree thinks it will go to $1 million. And the reason I think it's not impossible is that only a very small percent of the float is actively traded, so the total market cap really doesn't matter that much.

The higher it goes the less the people invested in it need to sell at all, because they don't have anything better to do with the money.

>The higher it goes the less the people invested in it need to sell at all, because they don't have anything better to do with the money.

But you could say the same thing about gold. I don't have a fantastic historical understanding, but I thought that the price of gold tends to spike as there are issues with fiat currency (war, hyperinflation, and so forth).

On this front there are vast differences: investors in gold and investors in bitcoin are just hugely different groups of people. Switzerland doesn't have a bitcoin reserve the way it has a gold reserve, nor does any other state.

so the comparison is kind of premature on my part, still, if we want to have a price target we need to base it on something.

[sincere question] aren't cryptocurrencies creating new money supply, though? I often hear "market cap raised by X billions", but it's not just that fiat billions are used to buy bitcoins, it's also that existing bitcoins are gaining value against fiat. Am I making any sense?

Market cap is not what you think it is. If there are X amount of bitcoins with the last one traded at price P, then the market cap is X * P. However, if people attempted to liquidate these bitcoins into 'real' currency, P would continuously go down. Market cap hence is not the amount of 'real' money that's contained within the bitcoin ecosystem.

The market cap is merely a metric that you get by multiplying the circulating supply by the price last paid for a single unit.

It's the same as with stock.

If people today pay $1000 more per bitcoin than yesterday, it doesn't change the circulating supply.

Assume that certain yellowish metal is worth nothing. It's pretty much useless. It's pretty but there are prettier materials. Has some nice physical properties (also some bad ones) but you can't use it in mass produced items in large quantities because it's too rare.

That is redeeming quality though. It's rare so you can be pretty sure people won't dig out 10 as much so its value won't drop rapidly. It's durable so it won't corrode away, combust or fly into space if you don't handle it carefully. You can hold it in your pocket or under your materace. This makes it excelent store of value. Not perfect though. If you own it you need to keep it physically secure. If you buy it you need to know how to not get duped. To sell it or buy it you need to physically meet with the buyer or a third party you both trust. Risk of all those operations grows with the value of your holdings.

Now this new thing comes up. It's also rare. You can store it perfectly securely without anyone knowing that you do. You can sell any fraction of it to highest bidder on Earth, from your home and that only requires you trusting sigle third party (that you can choose out of few) that trades over billion dollar's worth of this stuff every 24h.

I think you can easily see that half of value that humanity currently keeps in gold is very safe bet for bitcoin max market cap.

> Now this new thing comes up. It's also rare you, can store it perfectly securely without anyone knowing that you do.

That doesn’t describe bitcoin

> You can sell any fraction of it to highest bidder on Earth, from your home and that only requires you trusting sigle third party that trades over billion dollar's worth of this stuff every 24h.

That describes gold — depending on what you count as a “single third party”.

That said, at least it is a number… just one I don’t agree with, because at $7.5 trillion I think that makes Bitcoin so valuable that it becomes worthwhile doing anything to gain 51% control, including high-altitude nuclear EMPs over everyone who isn’t you.

>> Now this new thing comes up. It's also rare you, can store it perfectly securely without anyone knowing that you do.

> That doesn’t describe bitcoin.

Yes it does. You can buy it on exchange (or buy a miner and mine it yourself paying with electricity) and transfer it to your wallet. Encrypt the wallet and put it in multiple places online with cryptic name.

If you ever need money you can download it, decrypt it, send btc to exchange, sell it and get the money.

My point is that between the moment you buy bitcoin and moment you need the money nobody knows you have any bitcoins. Exchange or mining pool will know of course if you got your bitcoin from them but that's about it. Also you can mine other cryptocurrency with just your own hardware even just GPU that you conceivably could have bought to play games (no need for mining pool) and exchange it anonymously, then nobody knows you have any BTC.

>> You can sell any fraction of it to highest bidder on Earth, from your home and that only requires you trusting sigle third party that trades over billion dollar's worth of this stuff every 24h. >That describes gold — depending on what you count as a “single third party”.

Please elaborate. Let's say you are a student from Isfahan and have a gold coin under your materace. How would go about selling 1/10 of it and how it compares to process of cashing out 1/10th of 1 BTC in cold storage?

> Yes it does. You can buy it on exchange (or buy a miner and mine it yourself paying with electricity) and transfer it to your wallet

Wherever you buy it, that purchase is traceable. Wherever you sell it, that sale is traceable. Oh, just realised now even though you didn’t say this: Unless the thing you use to buy it, or for which you sell it, is also anonymous… of course, at that point it is no longer a benefit of bitcoin compared to the other thing.

> Isfahan and have a gold coin under your materace. How would go about selling 1/10 of it and how it compares to process of cashing out 1/10th of 1 BTC in cold storage?

Physical gold? OK, but I was thinking gold in a bank account, which is a thing you can get (“Glint”, I think is the name).

1) go to cash-for-gold corner shop, of which there seem to be far too many at the moment 2) divide coin into 1/10ths 3) exchange 1/10th coin for other financial token

From my history lessons, this is pretty much how money worked in the old days when it wasn’t just backed by gold but literally made from it, except 1) wasn’t needed because the shops just weighed your coins.

You have good arguments on your side, I can agree - but how can you be so _sure_ in your opinion?

TBH, while I don't know enough to have an educated opinion on Bitcoin's price, I can't help but feel skeptical about your comment, if only because of the amount of confidence you express.

"Ah yes, and lightning will certainly hit the same person again and again."

It did though. Again and again.

Will it keep doing so ?

Possibly, possibly not.

I don't think anyone can make a reasoned prediction one way or the other.

Common sense about Bitcoin flew out of the window long ago.

“No rational investor would ever make this investment”

Are the current buyers of bitcoin rational?

>> Bitcoin tripled in value

> Ah yes, and lightning will certainly hit the same person again and again.

Not a person but a tall grounded metal rod in the middle of nowhere that was designed and built to have physical qualities to attract lightnings. It works for that purpose as was demonstrated multiple times already.

Analogies, aren't they fun?

>Do you happen to have any money on bitcoin by any chance?

Maybe you don't have anything in BtC and are therefore exhibiting criticism on the basis of projected schadenfreude? I mean, it can work both ways, this argument of if you've got a "Vested Interest" .. or not.

What do you base the "absolute max value" on?

On time series records of its market price, of course.

And what did it say about the "absolute max" only a few months ago?

I think geezerjay meant it as a literal statement of past values rather than speculation on a future price.

The absolute maximum value that bitcoin has ever traded at publicly is (I believe) just under $20k USD. His point is that no rational investor would bet the farm on a 3x increase on anything regardless of past values.

This is the reason why advertised investments need to include a disclaimer stating that past returns are not an indicator of future success.

That all being said - I don't think a bet like this requires someone to be masking a cashout. Not everything has to be a conspiracy. It's far more likely someone is caught up in the hysteria and genuinely believes that Bitcoin will hit that value (which it might, I don't have a crystal ball).

"The market can remain irrational longer than you can remain solvent." - John Maynard Keynes

Don't pretty much all VC investors bet that the particular company is going to get a 3x+ increase in value?

Expecting something like that is a sign of a speculative and risky investment, but there are quite a few asset types that have such expected returns if the result is the returns instead of a bust.

>No rational investor would ever make this investment.

i think the notion of "rational investor" gets redefined with the speed of the BTC price growth :)

> No rational investor would ever make this investment.

Depends on your situation. But of course you need to assume that this is a very high risk investment... It could go to $500k or $0.50.

> Do you happen to have any money on bitcoin by any chance?

I only have a very small fraction of 1 Bitcoin... nothing to be excited about.

You were probably the same guy who shouted at $10, at $1000, at $10000 that it's gonna crash soon and that it's never going higher.

> The absolute max value stands at less than a third of that.

Care to elaborate?

I assume GP means the highest value realised so far, and was a bit sloppy on his mental maths.

The transaction costs are going through the roof though, if you want half the chance of it going through in a foreseable time frame.

What can you actually do with Bitcoin, then?

I don't personally use them, but you can use them to gamble online, black markets, transfer funds, etc.. much easier to move than gold (gold tends to be heavy, unless you get gold "certificates" or whatever they call them, then you don't even know if you really have real gold).

What can you do with gold bar you own?

Good point. Thanks.

> what's one more time?

That’s called gambling, not investing. Albeit many mixup the two concepts quite frequently, they are distinct.

They paid $1m for an option for 275 BTC@$50,000. That seems quite expensive... if the price goes anywhere near $50,000 the emitting party could aquire those 275 BTC for less than $50,000 each and wait until the options expire.. am i missing something?

Sure, the emitter could, say at $40,000, buy the 275 BTC. If the option expires in the money, the emitter would deliver the BTC, and receive $50,000 each, making a tidy $2.75m profit in addition to the $1m premium. But BTC could also fall back to $10,000. Then the emitter sits on a $8.25 m loss (minus $1m premium). That's really the issue.

It's feasible that the emitter owns 275 BTC already (or more), and is happy to give up the upside beyond $50,000 on 275 of them for $1m cash now (in other words, he wrote a covered call). That's the most likely scenario in my view.

(If you delta hedge, you could manufacture the call, and then are not so much exposed to the price of BTC, but to its realised volatility to expiry; the emitter would be short vol: if vol is higher than expected, they'd spend a lot on the delta hedge (due to gamma), if vol is lower, they'd spend less and make money.)


Ledgerx requires full collateral, so the emitting party had to have that BTC, but yes, seems quite expensive, but you have to take bitcoin volatility into the account. It could reach 50,000 in 2 days.

Bitcoin is currently not what Bitcoin was when it was created.

Slow peer-to-peer transactions High processing fees

Average fees are approaching 40 dollars. That's an average. Unconfirmed transactions are at an ATH of 260k... has been at over 100k for weeks. The mempool is also at an ATH. The Bitcoin is crippled and nothing more than a "store of value". Sentences like "store of value" are now the term used to describe Bitcoin. Very far from what the Bitcoin used to be.

I think there is a real possibility of a "death spiral of the blockchain". Fees will increase and it will become impossible to move coins on the blockchain besides the upper 10% of bitcoin holders.

The fork that occurred on 1st August created Bitcoin Cash. This fork is much closer to what the Bitcoin was. Bitcoin Cash is this today. Removal of the segwit code (which hasn't solved anything), disabling of RBF (replace-by-fees) enabling 0-confirmation transactions again. A new DAA (difficulty adjustment algorithm). Finally increase the block size to 8MiB.

The Bitcoin has been crippled on purpose by Blockstream deep in the pockets of bankers and insurance companies. Blockstream is the main contributor to the Bitcoin development. Look at the sponsors; https://www.blockstream.com/about/#investors

Before the bankers, and their followers, got indirectly involved in Bitcoin development there never was any discussion about limiting the block size to 1MiB; in fact the opposite was discussed. See; https://twitter.com/adam3us/status/636410827969421312?lang=e... https://bitcointalk.org/index.php?topic=1314.msg15143#msg151... https://np.reddit.com/r/btc/comments/71h884/pieter_wuille_im...

Now all of this has led to a complete divide and clusterfuck of the community. It is an very ugly and toxic environment and is sad to look at. On top of that we now have thousands of alternative coins and blockchains.

Just my 2 cents ;) Happy Christmas and new year to all!

> Unconfirmed transactions are at an ATH of 260k... has been at over 100k for weeks.

Statistics like these should be more prominent in the argumentation. Regardless of any technical discussion of the merits of SegWit vs. big blocks, there isn't any doubt in the usability of the system as is compared to as before.

Honestly at this point nobody can really make predictions for the short or medium term. There's not much in the way of underlying use of BTC as anything but a gamble here, and the tech enthusiasts/crypto-libertarians have been massively outnumbered by the bandwagoneers and FOMO.

The Bitcoin bubble could explode tomorrow or next year or just possibly it could find a way to become self sustaining (seems unlikely). It could repeat the crash-peak-crash pattern. It could do anything and analysis seems essentially pointless.

This looks like an uninformed ad for LedgerX.

For god's sake, no one in their right mind trades naked options - neither the seller nor the buyer. Given the historical volaitity of bitcoin rising from 1000 to 16000, it shouldn't be surprising at all that someone wants to hedge (a concept which seems alien to the writers) their positions.

The missing information is - what premium did it cost to secure the trade? Well, as per the data ~ $3600, which at current price is nearly 20% of the current price. Very costly premium for a very volatile product.

> no one in their right mind

Remember, we're talking about the same market and investors that brought us Dentacoin and Wu-Tang Coin.

[1] https://dentacoin.com/ [2] https://www.wutangcoin.com/

uh -- who does naked options at ledgerx?

and yes, the data says 3600 for the call, which is the definition of a premium. nothing missing, guys. seriously. do more thinking before you post.

seriously no joke, I am the CEO there, former trader at Goldman so I sort of know what I am talking about with this type of stuff. You guys do not. It's hilarious to watch this conversation.

It's not in your interest to be dismissive and insulting with others here, and it breaks the guidelines by being uncivil and unsubstantive. Could you please stop?


go ahead and close my account. you guys have tolerated a lot worse in the past with others. i'm just being substantive, because you know, i sort of know what i'm talking about.

in general, you are telling me to stop but I am telling you guys to stop. you do so much damage to companies with completely uninformed comments than you can possibly realize. if you don't know what you're talking about, don't talk. and yes, there are "facts" that companies cannot discuss in an open format. that's the nature of a regulated business. we do not do cat photo sharing. we hold money and assets for people. think on that.

Two things - One, it's not the comments on hn which is hurting you rather an adverse reaction to a story which is obviously raising a false flag in many people's mind. So, if this is story was a PR move, it was a bad one.

Second, you can't have it both ways. Get mad at people for saying wrong thing, as per you and then refuse to share information citing regulation. While people might forget the story they will remember the CEO who wanted to convince people but citing no evidence.

Lastly, you keep replying in a hostile manner to everyone. It is not helping your case.

it's absolutely my bad -- when you have been doing this for 4 years, and a team works incredibly hard to do a trade that makes a lot of sense, seeing comments like i've seen here on this thread just straight up hurts. and again, i simply cannot share certain pieces of information. i would literally go to jail, so it's frustrating to see the stuff that is posted about us (and I'm a YC alum on top of that)

You're the CEO of this company? Well congrats on the WSJ article.

Can I ask who books writing a large trade like this? Basically are you making this market and $1 million dollar trade like this would need to contact you guys to write it OTC? Or is the crypto options market supply that big and liquid already that a buyer can just come along and buy $1 million worth of Dec 18 Bitcoin call options that will clear?

not OTC -- it's centrally cleared by us.

I'm curious about how people's arguing about Bitcoin's prospects correlates with their cryptocurrency holdings.

I'm highly sceptical about the entire cryptocurrency space, due to the weirdly gold-standard like underpinnings of most of the currencies. I don't like the idea of deflationary currency. I don't like the idea of decentralised currency; I think central banks play a useful role, even if they don't always do it well. I don't think BTC is a good payment mechanism because it requires exchange at each end, long confirmation times and burning a ton of energy. I don't consider putting money into cryptocurrency 'investment' because it's not like putting money into a company or venture - you're just buying a virtual asset to sit on it. I think a lot of the programmable stuff around ethereum is an overhyped solution looking for a problem, most/all ICOs are scams and a whole host of other negative things about the entire sector.

That all said, I got curious and started mining with my gaming machines, and apparently I now have around $1K in various cryptocurrencies (half an ether, half a ZEC, some SIA, some ETN, a tiny piece of a monero, a few other little bits and pieces). The only money I've put in is through the electricity bill. I may find a way to cash out eventually, but at the moment I'm just going to hang on to it all and see where it is a year down the line. I don't believe in any of it - but I know other people do so there might be an opportunity to make some money.

I've had a lot of those same objections since I first heard about Bitcoin.

Ironically, I've been looking to buy some Bitcoin in the last couple months to trade for Sia, because I was thinking about setting up a storage node that can earn enough to pay for my own cloud backup needs.

I mined sia and eth together because there was a dual mining program. The idea behind it is kinda nice, I'm not sure I actually need the service right now... but I'll hang on to the 1k SIA I mined in case that changes.

I'm not expecting a speculative leap in value as amounts of siacoin mined are huge compared to the likes of ether or btc...

Do you need Sia to start hosting? I think you can just go for it.

Do you need Sia to start hosting? I think you can just go for it.

Yes, you need to put up collateral to start accepting storage contracts.


Oh interesting, thanks for that. It puts up a bit of a barrier to entry... ooh, and suddenly things look a little bit complicated, as you have to manage your collateral levels optimally to get a good score and be an attractive storage option.

I personally don't believe in BTC's future in terms of tech. It has already played its hand - see the entire crypto space - so I'm under no illusion about its limited potential (in its current form). However, it has made me a fair bit of money, and I feel that it could possibly still make me more in the short term. I've already withdrawn my initial investment and the capital I'm using to explore this space is basically "profit" from those same initial investments so whatever I lose is basically only opportunity costs.

Is it possible to rationally manipulate and speculate using bitcoin or do you have to be a believer?

Two year Bitcoin volume when measured in BTC seems relatively stable while the price goes up and up and new speculators come in. As long as the price goes up the same pace as demand, there is no upper limit to the price level that steady supply of bitcoin can support.

At the same time the market gets thinner and thinner relative to the bitcoin wealth. At some point the social mania around bitcoin peaks and speculators want to liquidate more than there is buyers.

Is this really a risky bet? I wouldn't be surprised if we hit $50k within a few months.

I don't consider that a risky bet, although I probably wouldn't have gone so high of a strike price, but high implied volatility does that to people.

Either way, they can sell from month options to finance the cost of their back month speculation, bringing their cost basis to zero or even less.

Now they would have a free trade that still has the whole upside potential, even better than a lottery ticket.

And finally, if it doesn't look like the bet is going to pay off within the last 3 - 6 months, they can rollover the long contract into the December 2019 options, mostly financing the purchase of the new long dated contract.

Options allow you to control risk, which is why it isn't inherently a risky bet.

If I understood correctly the article, the bet expires this month so if by Jan 1st price hasn't hit the mark, he loses?

No, it expires December 2018.

So if you "thought" that Bitcoin will go over $50k - why not buy the Bitcoin itself now at $20k (or whatever it is today)? i.e. what is gained with the call option here?

Let's say you have $20k to invest and you're convinced Bitcoin will be $60k in one year. If you buy bitcoin for $20k and sell in a year for $60k, you've made $40k profit.

If on the other hand you buy 10 $50k call options at $2k each then if Bitcoin hits $60k you'll get ($60k-$50k)*10 or $80k profit ($100k - $20k initial investment). Basically you're doubled your profits without increasing your investment.

On the flip side if Bitcoin 'only' hits $40k, you'll have lost $20k if you bought the call (since calls are worthless if the asset doesn't reach the target price), but made $20k if you'd bought the bitcoin.

Basically calls allow you to take bigger bets with less money up front.

To close out the comment DAG, this is the ELI5 for cardmagic's answer "leverage".

Well, futures (or forwards) give you leverage.

Options give you convexity (optionality, as it were), additionally.

You're assuming that it's naked (in the technical sense) speculation.

If they're covering a short position then this is just akin to insurance to limit the downside. Entirely sensible and the reason why they were invented in the first place.

Any chance of a ELI5 of this?

Let's say I'm convinced bitcoins will be worth at most $1k next year. Let's also say you have a bunch of bitcoins you're planning on sitting on for at least a year (since you're convinced the price is only going up and up).

What you then can do is lend me your bitcoins for a year and charge me interest on that loan as a way to generate some cashflow on an asset you where just going to sit on anyway.

So I'll borrow a bitcoin from you, sell it for $20k, and use some of that cash to pay you your interest. Now 1 year later I have to give you your bitcoin back. If I'm right, I can now buy a bitcoin for $1k on the market, give you the coins and pocket the difference as profits. On the other hand if bitcoins have gone up to $100k I'm screwed since I need a bitcoin to pay back my loan, and will have a loss of $100k-$20k = $80k.

An option lets me lock in the price I have to pay for a bitcoin in the future. I know that no matter what happens to the price I need to buy a bitcoin one year from now. So by taking out a call I'm buying insurance that no matter what happens I will never have to pay more than $50k for that bitcoin and thus I've capped the maximum amount of money I can lose on the deal to $50k-$20k=$30k. Without that my losses are potentially infinite.

cool - thanks.

For completeness, there's a related argument as to why you'd want to sell a call option with a strike price that looks a long way from the current price (an out of the money option in the jargon).

If you already own bitcoin with the price at 20k, you can sell the call option with the strike at 50k. You will immediately be given the premium. Now, if the price < 50k when the option expires you've made more money (the premium) than you would have done otherwise.

If it does expire above 50k, you can sell your bitcoin and give (current price - 50k). As such, you don't lose money but you don't gain as much as you would if you hadn't written the option.

This is called selling a covered call and is very common in the stock market. If you don't own the underlying asset i.e. enough bitcoin, this is called selling a naked option and is quite risky as you're exposed to the price going very high.

If you just sell a call on BTC, you could lose a lot when BTC goes up. -(S-K)^+ becomes very negative as S goes up. That's selling a naked call.

However, if you hold BTC, and you sell a call, you just give up some of the upside. S-(S-K)^+ just becomes K as S goes up. That's selling a covered call.

As in so many areas of life, covered is safer than naked.


Bitcoin is the new diamond, perhaps even more unethical and irrational.


People forget about the drugs, guns and human-trafficking that built Bitcoin.

It may have started as a response to the corruption in the banking system, but that's not how it got to where it is now.

The ability to buy the drugs you want online is the best thing Bitcoin has done for the world. It's a small market though.

People will see what they want to see. Like one could see Internet as pretty much the sole thing that enables child pornography and causes immeasurable damage.

Also, pretty sure Cash and Banking trumps Bitcoin in all of the following: terrorism, human-trafficking, drugs. Shell companies and weird schemes having been used and are used for a long time.

Final note, I argue that a lot of Venezuelans and Zimbabweans are thankful Bitcoin exists and they are not destroyed by the irresponsibility of governments.

With 20+$ transaction fees nobody is using Bitcoin for day to day expenses.

On net people are also caught through the Banking system, so you need to look at the ratio of net good : net bad. In that context it's hard to see any real value in Bitcoin as it exists today.

Shockingly, it turns out that there are people in Venezuela and Zimbabwe who have demand for unconfiscatable/uninflatable stores of money beyond daily transactions.

It costs more than 40$ to store then retrieve value. That's unfavorable for the vast majority of people in those countries and not cost effective for those with means.

Guns and human trafficking have never really been bitcoins main use case. Now drugs, drugs definitely are.

How would you know?

Its all there in the blockchain. Can't do THAT with greenbacks ..

Maybe they are but I've never seen evidence for it, even though there was plenty of evidence for drug traffic. It's easy to make an evidence-free claim that can't be proven false, but that doesn't mean the claim is true.

> Maybe they are but I've never seen evidence for it,

That's how money laundering works. The criminal says he accepts a token as a payment method for an illicit deal, and states where these tokens can be purchased for a fair price. The customers proceed to spend their cash on these tokens to then perform the transaction on the black market. Subsequently the criminals sell these tokens for cash to their next customers. That's how Japanese organized crime launders their earning with pachinko parlours, that's how drug dealers in the US use Tide detergent, and that's the only real-world use of these so called "cryptocurrencies" such as bitcoin.

There's also a rather absurd amount of energy burned up on the mining and transactions.

What does a cryptocurrency has to do with ethics?

With an attitude like that, nothing in your life has to do with ethics.

Thanks for the in-depth analysis.

It was very easy to get the point. What part didn't you understood?

Apparently nothing. So can we say Excel is also unethical?

while I could agree that bitcoins are forever, I can't imagine putting one on a ring ... except maybe a NFC Ring[0].

[0] http://nfcring.com/

Oh, someone could make a ring with a wallet of bitcoins stored in it and a screen that shows the number contained, like if they were carats

That is actually not a bad idea!

Somebody bought these options. That person is betting that Bitcoin will go over $50k next year.

Somebody also sold these options. That person is betting that Bitcoin will NOT go over $50k next year.

a bet... placed by a Bitcoin millionaire, to make the crypto-currency frenzies buy some more Bitcoin?

Okay ... options discussed on a tech forum. The next crash can't be far away ...

Can bitcoin be "damaged" by quantum computers?

Yes, a quantum computer with a few hundred error-corrected qubits (many more before error correction) would clean out all addresses with exposed public keys, by solving Elliptic Curve Discrete Log to recover the private key.

This includes many old addresses that didn't hash the public key, any re-used addresses, and, using replace by fee, even all new addresses in the time frame between broadcasting a spend transaction and that transaction being included in a block (which can currently take many hours).

It's actually closer to 2330 qubits and 126 billion Toffoli gates: https://eprint.iacr.org/2017/598

This is an interesting question to me, because I know little to nothing about the cryptography involved with cryptocurrencies.

1) What's the probability of the cryptographic ciphers behind cryptocurrencies being broken?

2) If they were broken, is it possible to 'move' BTC or other coins to a new cipher?

I apologize if I'm using the 'cipher' terminology incorrectly.

As far as I’m aware, hash algos like SHA or Scrypt are not the type of math that quantum computing threatens.

But elliptic signature algorithm are, and that's what lets you steal coins.

Paywalled. How do I read the whole story?

Here is an archive of the article:


Go to the page, then click this bookmarklet


copy URL, paste in facebook search bar, enter, and pick any link that's been shared.


If that’s true, you’re making your case worse rather than better.

Your earlier comment that you worked at GS and “sort of know what I’m talking about” with no actual constructive rebuttal to any arguments undermines your credibility.

the comments were just straight up wrong assuming information that only I have, and I can't rebut it because, you know regulators would put me in jail. so now what?

The answer to "now what?" on Hacker News is always the same: comment according to the guidelines or just don't.


In my experience at HN, people (even recognised experts) typically try to back their opinion and explain the facts, rather than resort to "all these comments are all incredibly wrong." Please try that, you'll have a much better reception.

look, i really do not try to be an ass about this stuff, but the stuff people post is actually just wrong and hurts my business (people on hn can appreciate this) but i can't say anything substantive because we're regulated by the US govt and I can't say anything beyond what I am allowed to.

Does that make sense?

That's more like a billion-dollar bet. Ask the Winklevoss twins.

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