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.
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.
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.
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.
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.
The number of times LedgerX was mentioned made me suspect that immediately.
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.
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.
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?
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?
(attributed to John M. Keynes)
As a rational investor/gambler, when I hear that someone is willing to make a “ludicrous bet”, I’m happy to book their action.
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
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? :)
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.
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.
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...
Storing or transporting any amount of gold must be ridiculously expensive and inconvenient security-wise.
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.
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?
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.
It's the same as with stock.
If people today pay $1000 more per bitcoin than yesterday, it doesn't change the circulating supply.
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.
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.
> 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?
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.
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.
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.
Are the current buyers of bitcoin rational?
> 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?
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.
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
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.
i think the notion of "rational investor" gets redefined with the speed of the BTC price growth :)
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.
Care to elaborate?
What can you actually do with Bitcoin, then?
That’s called gambling, not investing. Albeit many mixup the two concepts quite frequently, they are distinct.
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.)
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!
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.
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.
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.
Remember, we're talking about the same market and investors that brought us Dentacoin and Wu-Tang Coin.
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.
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.
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?
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.
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'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.
Yes, you need to put up collateral to start accepting storage contracts.
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.
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 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.
Options give you convexity (optionality, as it were), additionally.
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.
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.
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.
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.
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.
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.
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.
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.
Somebody also sold these options. That person is betting that Bitcoin will NOT go over $50k next year.
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).
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.
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.
Does that make sense?