Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live(bloomberg.com)
bloomberg.com
Goldman Sachs Plans to Clear Bitcoin Futures When They Go Live
https://www.bloomberg.com/news/articles/2017-12-07/goldman-sachs-is-said-to-clear-bitcoin-futures-when-they-go-live
117 コメント
> Has anyone discussed the future of forks with respect to futures?
The reference bitcoin index for futures is well-defined: http://www.cmegroup.com/trading/files/bitcoin-reference-rate...
I would guess that this was done in collaboration with the relevant exchanges. So forks are pretty much a don't-care for the futures that begin trading in the next two weeks.
The reference bitcoin index for futures is well-defined: http://www.cmegroup.com/trading/files/bitcoin-reference-rate...
I would guess that this was done in collaboration with the relevant exchanges. So forks are pretty much a don't-care for the futures that begin trading in the next two weeks.
That doesn’t actually address the case where the constituent exchanges disagree on which side of a contentious fork is “Bitcoin”.
Exchanges are incentivized to quickly converge on one or the other so it may not be a problem.
Exchanges are incentivized to quickly converge on one or the other so it may not be a problem.
Another question (this is just my ignorance) but...if BTC has a fork, does that mean that the new fork has a new entire supply? I thought the "value" in BTC is that there is a limited supply and it can't be degraded like a fiat currency. If you can just keep forking...how is that not immeasurably increasing supply just like the ECB and Fed do?
No, the forked coins and the original coins aren’t fungible. It’s more like me saying “show me your dollar bills at the time of the fork and I’ll give you an equivalent amount of Monopoly money”. It’s not going to be worth anything unless you somehow convince a bunch of other people it’s worth something, and even then it’s likely going to be worth far less than the original coins because fewer people will accept it and it will be easily attacked due to lack of hashing power.
I'm not saying they'd be 1-to-1 off the bat. I'm asking do forks have their own supply, and are no longer limited by the supply of the previous coin? If so, my question is when BTC runs out of things to mine a) why would miners that needed to process transactions even stick around hashing and not just go to the fork where they could actually make money? b) and doesn't this just mean technically you could create widely accepted fork from a major crypto like BTC, have a 0% transaction cost between each and essentially have them level out using purchasing power parity...basically just extending the initial money supply by making transaction costs 0 between the parent and the fork? Since cryptos aren't based on economic strength, or trade imbalances like fiat currencies, it seems you'd just easily be able to eventually make them hit parity for the mere sake of keeping computers (miners) around to verify transactions.
Bitcoin and others like it I feel are going to become far more centralized than people think, otherwise I don't see who the hell is going to use their computing power to verify transactions...which is really what miners are doing.
Maybe I'm missing something.
Bitcoin and others like it I feel are going to become far more centralized than people think, otherwise I don't see who the hell is going to use their computing power to verify transactions...which is really what miners are doing.
Maybe I'm missing something.
Everything about Bitcoin is driven by emergent consensus. This includes the mining - there is no underlying fundamental mathematical entity that is being discovered or exhausted when people are “mining”. The only reason there is said to be a limited number of Bitcoin available is, well... because everyone says so! All Bitcoin clients agree that it is correct and proper to award yourself 25BTC when you mine a block. Since we all agree that’s ok, we all happily build on top of blocks that do this. We ignore blocks that try to break the rules by awarding themselves more. Eventually we will all suddenly change our mind and only associate with blocks that award the miner 12.5BTC, and then 6.25, etc until it reaches zero. That is the total extent to which the supply of BTC is limited. It’s completely driven by that wide social consensus.
If you tried to start a fork built off of older blocks with a bunch of your miner buddies, it would essentially be a 51% attack. You’d have to convince a quorum of miners and users to treat ledger entries in your fork like real Bitcoin transactions. If you have the power to do that, you have successfully attacked the network, and you may as well have just sat your new blocks with mining rewards on top of the extant main chain. It’s not like mining older blocks gives you more BTC in some mathematical sense - you’re always just earning whatever you think the network will let you get away with, based on the schedule that has been agreed upon a priori.
Hopefully this makes it clear that the question of whether a fork has a separate supply is confused. Neither the main nor the fork have a true finite supply - just a finite amount people will in practice agree to letting you mine. In the case of the fork, it doesnt’t matter whether you can convince them to let you go back to increased mining reward, because you have a much larger problem - nobody considers any transaction in the fork money in the first place. If at any time they do, you’ve attacked the network. Miners and users both equally dislike a state of the world where there is more than 1 version of history - it calls into question whether any wealth they have in chain A is real now that chain B is more popular. In practice they will quickly coalesce into considering one chain the true one, and changing everybody’s mind, especially long after the transactions have settled, would be a monumental task. Because everybody understands this, nobody would even try it, since it’s a waste of precious mining resources. This is why you didn’t see rogue forks forming when the reward decreased from 50 to 25 BTC.
I know that’s a wall of text, but feel free to keep asking questions if you’re interested.
If you tried to start a fork built off of older blocks with a bunch of your miner buddies, it would essentially be a 51% attack. You’d have to convince a quorum of miners and users to treat ledger entries in your fork like real Bitcoin transactions. If you have the power to do that, you have successfully attacked the network, and you may as well have just sat your new blocks with mining rewards on top of the extant main chain. It’s not like mining older blocks gives you more BTC in some mathematical sense - you’re always just earning whatever you think the network will let you get away with, based on the schedule that has been agreed upon a priori.
Hopefully this makes it clear that the question of whether a fork has a separate supply is confused. Neither the main nor the fork have a true finite supply - just a finite amount people will in practice agree to letting you mine. In the case of the fork, it doesnt’t matter whether you can convince them to let you go back to increased mining reward, because you have a much larger problem - nobody considers any transaction in the fork money in the first place. If at any time they do, you’ve attacked the network. Miners and users both equally dislike a state of the world where there is more than 1 version of history - it calls into question whether any wealth they have in chain A is real now that chain B is more popular. In practice they will quickly coalesce into considering one chain the true one, and changing everybody’s mind, especially long after the transactions have settled, would be a monumental task. Because everybody understands this, nobody would even try it, since it’s a waste of precious mining resources. This is why you didn’t see rogue forks forming when the reward decreased from 50 to 25 BTC.
I know that’s a wall of text, but feel free to keep asking questions if you’re interested.
How does this square with, for instance, the Bitcoin Cash fork? Bitcoin Cash fulfills most of the "attack" as you've described, but it still trades as money.
The social consensus, in this age of the world works in such a way that one of the few (but not sole) ways in which you can convince people to go along with your attack/fork is to put forward technical (including economic) arguments about why the rules should be done differently and ask those who agree with you to lend you their hashing power.
> Everything about Bitcoin is driven by emergent consensus.
...which is a fancy word for a speculative bubble.
...which is a fancy word for a speculative bubble.
Well, yes, just like the emergent consensus that US dollars are worth real goods and services.
Nothing is “worth” something unless people say it is. There are plenty of problems with Bitcoin as a currency, but the fact that its value is derived from speculation is not one of them. All currency is like this.
Nothing is “worth” something unless people say it is. There are plenty of problems with Bitcoin as a currency, but the fact that its value is derived from speculation is not one of them. All currency is like this.
Actually, what he was doing was explaining the concept of how nodes enforce nakamoto consensus in order to validate transactions. It had absolutely zero to do with valuation.
> when BTC runs out of things to mine a) why would miners that needed to process transactions even stick around hashing
Bitcoin is designed with transaction fees for miners which in principle can replace block rewards as an incentive for hashing.
Bitcoin is designed with transaction fees for miners which in principle can replace block rewards as an incentive for hashing.
That is indeed a hell of a problem. The only thing you could objectively do is to nominate the bitcoin client that you use in order to retrieve coins. That includes the version. "Alice pays Bob 1.0 in year 2020 using bitcoin core node client v0.15.2"
>"The decision to clear client trades will be made on a case-by-case basis, the person said."
Could someone say what "clearing the trades" mean here?
Could someone say what "clearing the trades" mean here?
I think there is something of term-of-art here.
"Clearing brokers" (like Goldman) vet the clients who send transactions to the exchange. If the client defaults on a trade, Goldman is likely liable to the clearing house for the default amount, so it is in their interest to clear only those clients with sufficient collateral to provide margin.
Note that a clearing broker is different from a clearing house. The clearing house serves as a back end settlement layer to an exchange, which serves as a front-end matching engine.
https://www.investopedia.com/terms/c/clearingbroker.asp
Edit: There must be a bona fide finance guy here on HN to answer this knowledgably?
"Clearing brokers" (like Goldman) vet the clients who send transactions to the exchange. If the client defaults on a trade, Goldman is likely liable to the clearing house for the default amount, so it is in their interest to clear only those clients with sufficient collateral to provide margin.
Note that a clearing broker is different from a clearing house. The clearing house serves as a back end settlement layer to an exchange, which serves as a front-end matching engine.
https://www.investopedia.com/terms/c/clearingbroker.asp
Edit: There must be a bona fide finance guy here on HN to answer this knowledgably?
This is the correct answer and only one of two correct answers at the moment.
Aside from the difference between the clearinghouse and the clearing broker, the difference between the executing broker and the clearing broker is also interesting.
For example you might have bank A as your executing broker and they give up the trade to bank B which is your clearing broker. You might even have your own exchange membership and bank B clears the trade for you.
Aside from the difference between the clearinghouse and the clearing broker, the difference between the executing broker and the clearing broker is also interesting.
For example you might have bank A as your executing broker and they give up the trade to bank B which is your clearing broker. You might even have your own exchange membership and bank B clears the trade for you.
It means they will allow their account at the exchange to settle client trades. This will involve them using their existing collateral at the exchange to underwrite the client trades. They will in turn demand collateral from the client but may be potentially exposed if the client defaults.
It's where Goldman would net off trades between their own clients, effectively acting as an exchange for their clients using the prices on the official exchange. They say in the article they won't act as market-makers or hold their own positions. That means they won't perform their usual capacity for clients, where they act as middleman between the exchange and their own clients. ie they won't make a price for their clients to buy a bitcoin future the client wants to sell, and then turn around and sell the bitcoin to someone else the exchange later in the day. They won't do that. What the will do is buy the bitcoin future if they have another client that wants to buy it at the same time, because then they will never assume much risk.
It’s smart because holding BTC in a Tulip-bulb crisis is insanely risky. This current crisis is due to elastic demand based on short-lived, fashionable attention of a tiny currency, whereas common currencies are more inelastic because their usage and scale lends themselves to more stability. The value will collapse when people lose interest or when large institutions get over the mania of New Relationship Energy. Durable, appreciating assets that are easily liquidated are ideal for holding balance sheet value. For transactions, BTC maybe fine but even that is risky.
It will be interesting to see if shorting will be possible.
It will be interesting to see if shorting will be possible.
I can't see shorting it outright without being wheeled out on a stretcher. Options will be the best play to safely express a bearish position with asymmetric risk/reward assuming they aren't priced to insanely due to IV. Still at least you know your risk.
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Just use a stop order:https://support.gdax.com/customer/portal/articles/2426596
There will be some slippage, but it'll be relatively bound.
There will be some slippage, but it'll be relatively bound.
I assume this is getting downvoted because it won't actually work. Can someone explain why? Can you not use a stop loss like this in futures trading when you short something?
May be a silly question, but I know little about this stuff.
May be a silly question, but I know little about this stuff.
I’m no investor, but one reason I could think as to why it wouldn’t work is once a crash starts, demand would suddenly dry up at the prices you specified and you’d suddenly find yourself with a bunch of orders that can’t be filled.
Yeah. Or worse, you have orders that are filled, but because they are market orders and the market has disappeared, they aren't filled at anywhere close to the price you expected.
At my first job I had a project that involved looking at the actual order book for various stocks on the NASDAQ. There's always some asshole who puts in a limit buy for $0.01 on the hopes that if liquidity dries up, they'll be the best bid and get the stock for literal pennies on the dollar (I've been that asshole, though I've never actually had an order filled at that price). Normally all these orders are completely irrelevant because they're nowhere close to being the best bid, so other buyers get the stock and they just sit there on the order book.
In a flash crash scenario where everybody runs to the exits at once, it's possible for liquidity to completely dry up. The market gets hammered by so many sell orders that they burn through all the people willing to buy at reasonable prices. Then the exchanges dutifully match you up with whoever's left in the order book...which is usually the jokers who are like "Well, I'll put in a limit order for $0.01, leave it there, and see if it ever fills." Because your stop is actually a market order, you take whatever price the market gives you, which is...$0.01. You've just sold your $18K bitcoin for one cent.
This actually happened with the flash crash of 2010, but because market manipulation was proven, NASDAQ halted trading and invalidated the trades that occurred at those prices. There are no such failsafes or means of recovery with Bitcoin.
https://en.wikipedia.org/wiki/2010_Flash_Crash
Stop limits have the problem you mentioned - they just won't get filled in a flash crash, leaving you with Bitcoin that you can't get rid of.
At my first job I had a project that involved looking at the actual order book for various stocks on the NASDAQ. There's always some asshole who puts in a limit buy for $0.01 on the hopes that if liquidity dries up, they'll be the best bid and get the stock for literal pennies on the dollar (I've been that asshole, though I've never actually had an order filled at that price). Normally all these orders are completely irrelevant because they're nowhere close to being the best bid, so other buyers get the stock and they just sit there on the order book.
In a flash crash scenario where everybody runs to the exits at once, it's possible for liquidity to completely dry up. The market gets hammered by so many sell orders that they burn through all the people willing to buy at reasonable prices. Then the exchanges dutifully match you up with whoever's left in the order book...which is usually the jokers who are like "Well, I'll put in a limit order for $0.01, leave it there, and see if it ever fills." Because your stop is actually a market order, you take whatever price the market gives you, which is...$0.01. You've just sold your $18K bitcoin for one cent.
This actually happened with the flash crash of 2010, but because market manipulation was proven, NASDAQ halted trading and invalidated the trades that occurred at those prices. There are no such failsafes or means of recovery with Bitcoin.
https://en.wikipedia.org/wiki/2010_Flash_Crash
Stop limits have the problem you mentioned - they just won't get filled in a flash crash, leaving you with Bitcoin that you can't get rid of.
>There's always some asshole who puts in a limit buy for $0.01 on the hopes that if liquidity dries up, they'll be the best bid and get the stock for literal pennies on the dollar ... Because your stop is actually a market order, you take whatever price the market gives you, which is...$0.01.
Why doesn't everyone do this constantly if it's a possibility? Low chance of such a windfall, but what's the downside?
Why doesn't everyone do this constantly if it's a possibility? Low chance of such a windfall, but what's the downside?
In addition to the sibling comment, there's a non-trivial risk that, when the crash happens, it's because of a legitimate, non-local drop in value, and you're stuck holding something worthless.
Basically extremely low chance of windfall, plus transaction costs. Most brokers charge you to place an order; even if the price is just a few pennies, if your chance of that order actually being filled is one in an extremely low number, you're still losing money on the deal. Additionally, "good till canceled" orders (which is what you want to use here) are time-limited on most exchanges, typically to 30 days. That means you need to spend mental bandwidth refreshing them every month, which for something that has an infinitesimal chance of paying out, usually isn't worth it. (I basically let my order lapse after a month because I forgot about it.) The orders exist because out of millions of market participants, somebody's going to place one, but it generally isn't cost-effective for that person to be you.
With regulated exchanges like the major stock ones, you also have to worry about your transactions being invalidated, eg. in the 2010 flash crash nobody who did this actually got paid out because the exchange said "Oops, software glitch" and canceled all transactions before settlement (with the stock market, you don't actually receive the stock until 3 days after you make the transaction).
With regulated exchanges like the major stock ones, you also have to worry about your transactions being invalidated, eg. in the 2010 flash crash nobody who did this actually got paid out because the exchange said "Oops, software glitch" and canceled all transactions before settlement (with the stock market, you don't actually receive the stock until 3 days after you make the transaction).
This is exactly what happened with ETH few months back on GDAX. 300 to 200, crashes the site in seconds, triggered pretty much all stop losses and margin calls. When down to a penny.
A stop loss will (assuming anyone is willing to take the other side at any price, since it's a market order) get filled once triggered, but depending on market dynamics with potentially unlimited slippage. Slippage tends to be limited in markets with high liquidity, but as I understand Bitcoin on any existing exchange hasn't consistently shown that behavior.
A stop limit order doesn't have unlimited slippage, but may not get filled at all; there is no foolproof stop order.
A stop limit order doesn't have unlimited slippage, but may not get filled at all; there is no foolproof stop order.
No guarantee what price your stop order will execute at; it's still unbounded risk.
So if the blockchain evolved such that it took 2 or 3 hours for a transaction to clear, and cost, say, $5,000 then during the same 2-hour block Goldman could let A sell 50,000,000 pretend bitcoins to B, B could sell 25,000,000 pretend bitcoins to C, and 25,000,000 pretend bitcoins to D, then the price could move up (or down) and A could buy back 25,000,000 from C and 25,000,000 from D, so that A, B, C, and D have the same number of virtual bitcoins that they started with - but the exchange could have resulted in a transfer of net actual dollars between A, B, C, and D - without incurring up to 50 million * $5,000 = $250 billion in transaction fees?
Where even though this net transfer happened, all of A, B, C, and D think that it was fair and what they wanted? (I call them "pretend bitcoins" because they don't need to be reflected in the blockchain - the transaction of 25 million pretend bitcoins in motion aren't reflected in the blockchain.)
feel free to correct me if I'm very wrong.
Where even though this net transfer happened, all of A, B, C, and D think that it was fair and what they wanted? (I call them "pretend bitcoins" because they don't need to be reflected in the blockchain - the transaction of 25 million pretend bitcoins in motion aren't reflected in the blockchain.)
feel free to correct me if I'm very wrong.
Neither CME or CBOE bitcoin futures are directly connected to bitcoins. Both will be cash settled (i.e. no bitcoin delivery). There will be no need for buyers, sellers or intermediaries dealing in bitcoin futures to buy/sell/own bitcoin.
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> It's where Goldman would net off trades between their own clients
This is internalization, which is different from clearing.
This is internalization, which is different from clearing.
Hmm, in trading, internalization is where a broker would fill a buy order from its own inventory instead of acting as the middle man it normally is. So not sure why that idea has been brought up.
To clarify, Goldmans are offering to buy* futures their clients want to sell, if they can line up one of their other clients/counterparties to buy it from Goldmans at the same time. Goldmans is acting only as an intermediary or a broker. The key idea for clients is that if you want to sell, you want to get a quick and good bid from your trading partner. Goldmans are not offering to do that. They won’t make a price straight away for their client, they will only broker trades, so they will need to call up others to find out what their price is, hold them on the line and then offer the price to the client. At the end of the trading day, all Goldmans will do is net off trades between their own counterparties. Goldman clients expect the company usually to act as market maker for futures trades. As a former sell-side trader, what that means is I can make my own prices for the client, buy their futures off them, hold them, and later in the day I can sell them myself, possibly to the exchange. I hold my own position, I assume my own risk, on a short term/daily basis. This is better for the client because they can get an immediate market, they don’t have to wait for me to call someone else.
In a way Goldmans are saying they won’t trade against their own clients. Given their history with the CDOs (think The Big Short), and given how opaque the underlying Bitcoin market is, this seems to me to be a covert reassurance that they won’t be working against their clients.
* or sell obviously.
To clarify, Goldmans are offering to buy* futures their clients want to sell, if they can line up one of their other clients/counterparties to buy it from Goldmans at the same time. Goldmans is acting only as an intermediary or a broker. The key idea for clients is that if you want to sell, you want to get a quick and good bid from your trading partner. Goldmans are not offering to do that. They won’t make a price straight away for their client, they will only broker trades, so they will need to call up others to find out what their price is, hold them on the line and then offer the price to the client. At the end of the trading day, all Goldmans will do is net off trades between their own counterparties. Goldman clients expect the company usually to act as market maker for futures trades. As a former sell-side trader, what that means is I can make my own prices for the client, buy their futures off them, hold them, and later in the day I can sell them myself, possibly to the exchange. I hold my own position, I assume my own risk, on a short term/daily basis. This is better for the client because they can get an immediate market, they don’t have to wait for me to call someone else.
In a way Goldmans are saying they won’t trade against their own clients. Given their history with the CDOs (think The Big Short), and given how opaque the underlying Bitcoin market is, this seems to me to be a covert reassurance that they won’t be working against their clients.
* or sell obviously.
The important thing about internalization in this context isn't who takes the other side, but the fact that the trade gets done before it even reaches an exchange. You're right that it usually refers to a market maker taking the other side as principal off exchange.
> To clarify, Goldmans are offering to buy* futures their clients want to sell, if they can line up one of their other clients/counterparties to buy it from Goldmans at the same time.
This is not what clearing means. You're talking about execution. They'll still clear the trades even if you execute away. There's not really anything else I can add to this discussion.
An imperfect analogy is that you're buying the futures with a credit card and Goldman will step in and pay the bill if you can't.
> To clarify, Goldmans are offering to buy* futures their clients want to sell, if they can line up one of their other clients/counterparties to buy it from Goldmans at the same time.
This is not what clearing means. You're talking about execution. They'll still clear the trades even if you execute away. There's not really anything else I can add to this discussion.
An imperfect analogy is that you're buying the futures with a credit card and Goldman will step in and pay the bill if you can't.
Why don't their clients trade directly on the exchange? What value does GS provide here?
> Why don't their clients trade directly on the exchange?
Because to do that with funds in a GS account that you use for trading other things, you have to take the money out, which adds friction?
Because to do that with funds in a GS account that you use for trading other things, you have to take the money out, which adds friction?
You still need to clear the trades even if you directly trade on the exchange. It's just not worth the expense for the vast majority of customers to maintain clearing memberships for every single product at every single clearing house.
Clearing is all about novation. This basically means that the buyer and seller don't see each other as counterparties, but only see Goldman as the "middle-man" counterparty. It's a method of reducing counterparty risk, as both parties end up transacting with a credible institution, rather than directly with each other. This also means that the central clearing counterparty takes on counterparty risk, and that's pretty much what the clearing fees are paid to them for.
As a footnote, I'm not sure how Goldman are going to novate the transactions - as in, will they actually issue 2 transactions on the blockchain?! I don't see a real need for that, given that the blockchain protects against such risks to a large extent. Maybe their definition of clearing for bitcoin is different to that for standard derivatives, in which case they will probably just help their non techy clients (i.e. many of the hedge funds in Mayfair and Manhattan) execute bitcoin transactions.
I believed the futures are “cash settled”, basically betting on the price of Bitcoin on other exchanges, not real Bitcoins.
I'm not an expert on the nitty-gritty details of back office stuff, but typically novation comes into play when you're dealing with swaps. These are centrally cleared futures so you're not facing the person on the other side of the trade.
Clearing the trades means both buying and selling.
So they are the market maker?
Clearing doesn't mean buying and selling.
There's not really a great analogy, but the idea is that Goldman is on the hook if one of their customers can't maintain the margin/haircut.
There's not really a great analogy, but the idea is that Goldman is on the hook if one of their customers can't maintain the margin/haircut.
No, they just serve as a central point to match buyers and sellers so the buyers and sellers don't have to find each other themselves. They aren't making a market but they do get clearing fees.
More like match maker.
No more like a broker. When you buy stocks through your broker, all the broker does is to pass on your order to the exchange, and to report when it was executed. The broker doesn’t take any risk, other than you not making a payment after you gave the buy order.
If the broker was a market maker, he would keep an inventory of that stock and your order would be filled by the broker directly. Who would then report and clear the transaction on the exchange.
If the broker was a market maker, he would keep an inventory of that stock and your order would be filled by the broker directly. Who would then report and clear the transaction on the exchange.
I have been trading crypto for 5 years now and it is a wet dream for rogue traders. There was a myriad of stories about traders and even banks that tried to pull of some shady statretgy in the stocks markets that the SEC shut down, those same strategies seem to be fair game in the crypto world, you just have to have pockets that are deep enough. My point is that if you are smart and think you can beat or even keep up with the crypto market, you will end up losing because it’s been rigged for years.
I've always laughed watching the cultist end of the crypto community up on their imaginary moral high horses talking about how much "better" crypto was than banks and regulated markets.. given the fact that crypto markets basically represent all of the shady shit manipulators in regulated markets would love to do but can't.
+1. It's laughable. Segregated accounts, position limits, circuit breakers, margin limits, spreads across duration to reduce risk, etc are all GOOD things. The counter party risk in the exchanges right now is HUGE in the bitcoin world. Pass on that.
Very well said, Both of these comments , capture the essence of STATE of Crypto trading unregulated markets of today .
> I've always laughed watching the cultist end of the crypto community up on their imaginary moral high horses talking about how much "better" crypto was than banks and regulated markets..
> given the fact that crypto markets basically represent all of the shady shit manipulators in regulated markets would love to do but can't. reply
> +1. It's laughable. Segregated accounts, position limits, circuit breakers, margin limits, spreads across duration to reduce risk, etc are all GOOD things. The counter party risk in the exchanges right now is HUGE in the bitcoin world. Pass on that.
> I've always laughed watching the cultist end of the crypto community up on their imaginary moral high horses talking about how much "better" crypto was than banks and regulated markets..
> given the fact that crypto markets basically represent all of the shady shit manipulators in regulated markets would love to do but can't. reply
> +1. It's laughable. Segregated accounts, position limits, circuit breakers, margin limits, spreads across duration to reduce risk, etc are all GOOD things. The counter party risk in the exchanges right now is HUGE in the bitcoin world. Pass on that.
> There was a myriad of stories about traders and even banks that tried to pull of some shady statretgy in the stocks markets that the SEC shut down
OK, let's hear a few of the stories. Or at least a few links.
(And I promise my pockets aren't deep enough to execute on them.)
OK, let's hear a few of the stories. Or at least a few links.
(And I promise my pockets aren't deep enough to execute on them.)
He might be referring to some dark pool trading (eg private exchanges)
If you are short term day trading you're likely to be a victim of pump and dump groups and manipulation.
Going long on high market cap coins with a longer timeline is a relatively safer bet.
Going long on high market cap coins with a longer timeline is a relatively safer bet.
There are fees to any position you hold so even though going long is indeed the safe bet, having a longer timeline requires deep pockets.
You can avoid the fees on some bitcoin exchanges if you're a market maker, and with the volatility that's pretty easy most days. I made a couple 0% fee trades today alone. But, the second part is definitely true... you still need deep pockets to hold a long position.
Buy and hold doesn't have any recurring fees. If you look at the opportunity cost between crypto and any other financial security in the market, its an easy decision.
"Fees"
I see the margin lending rates on some exchanges right now being 0.003% daily. This is for coins that move 10% a day.
Probably fair to assume fees aren't what the traders lose sleep over.
I see the margin lending rates on some exchanges right now being 0.003% daily. This is for coins that move 10% a day.
Probably fair to assume fees aren't what the traders lose sleep over.
This should give the big Wall St banks the ability to muck with crypto prices however they choose, just like they can do with gold and silver and other commodities (for example, Goldman magically closed gold positions and sold short 2 days before historic 25% price drop in 2 trading days in 2013[0])
Hopefully people will read those contracts and understand how delivery actually works and realize that COMEX or whoever can halt delivery and settle in cash if they want to, etc.
[0] - https://www.cnbc.com/id/100630626
Hopefully people will read those contracts and understand how delivery actually works and realize that COMEX or whoever can halt delivery and settle in cash if they want to, etc.
[0] - https://www.cnbc.com/id/100630626
> This should give the big Wall St banks the ability to muck with crypto prices however they choose,
The current status quo is that large bitcoin holders can muck with crypto prices however they choose.
The current status quo is that large bitcoin holders can muck with crypto prices however they choose.
Futures exchanges will have to buy large sums of underlying assets (one reason for the recent spike.) So, in the end a lot of exchanges will be some of the largest crypto holders.
The currently proposed CME and CBOE futures are cash settled. No actual bitcoin is involved. Neither the buyers or sellers of the futures, nor any other entities involved, will need to buy/sell/hold any bitcoin.
The futures are cash settled, none of the futures exchanges need to own any bitcoin at all.
I suspect the investment banks that say they're going to stay away will quickly get FOMO and jump in sooner rather than later.
Crypto is always in the headlines and will constantly occupy the headspace of trader's colleagues and peers, so it's just human nature that they will not be able to resist having a taste.
Crypto is always in the headlines and will constantly occupy the headspace of trader's colleagues and peers, so it's just human nature that they will not be able to resist having a taste.
I have no idea if Bitcoin is going to succeed or fail, but if anyone thinks the second guy in the video has no idea what the block chain is because he mumbled "block-coin", you have been fooled. Who the hell is that "reporter"? When would the CEO come out and boast this is all a joke. Of course Goldman has an very keen understanding of what's going on. They are almost guaranteed to have a position on BTC one way or another and be goading people into buying it. That doesn't mean smart or lucky people won't be able to ride their wave up if they are successful, but to think Goldman is dumb as those two guys seem is completely ludicrous, its obviously an act.
I wonder what Jamie Dimon thinks about this! Funnily enough, my sources tell me JP will be in on the futures contracts as well. What hypocrisy!
It's not really hypocrisy. There's money to made by clearing futures and some of the banks want that money. What's being traded doesn't really matter.
Maybe, but then the things he said about his potential future clients are just downright hurtful: https://www.cnbc.com/2017/10/13/jamie-dimon-says-people-who-...
> "The only value of bitcoin is what the other guy'll pay for it," Dimon said. "Honestly I think there's a good chance of the buyers out there are out there jazzing it up every day so that maybe you'll buy it too, and take them out."
Is there any reason to consider this statement inaccurate?
Is there any reason to consider this statement inaccurate?
It's accurate, but it's also accurate for almost every fund/structured security that many of JP's desks are peddling.
He was talking about market making, not clearing. The bank doesn’t really take a principal risk on clearing. It does on market making.
The way I saw it, he was condemning bitcoin in general, not market making on bitcoin specifically. Even clearing has risk - admittedly not market risk, but significant amounts of credit risk (that's why people pay for it).
He said he didn't believe in it and wouldn't allow his traders to trade it (i.e. to make a market). But passing client orders is a different matter.
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I bet Ethereum futures come within a year or so. Now that the banks are executing trades for one, it’s much easier to add more.
bitcoiners in 2012: "Bitcoin will eliminate the wall street banksters!"
Bitcoiners right now: "OMG Goldman is getting in, who's ready for their moon rocket?"
Bitcoin eliminating the banksters doesn't mean bitcoin will kill them and then become popular. Bitcoin becoming popular comes first; while that's happening there's a period of coexistence before it makes them redundant.
Not necessarily my POV that it'll happen, I'm just arguing that those two views aren't contradictory. (Even if they were, it is not unusual for a community of humans to hold diverse, and even incompatible, views.)
Not necessarily my POV that it'll happen, I'm just arguing that those two views aren't contradictory. (Even if they were, it is not unusual for a community of humans to hold diverse, and even incompatible, views.)
Expectations are rather more mixed than that.[0] Sure, the price could spike even higher after futures go on sale. But volatility will increase dramatically. And you can't count on exchanges, if the price collapses.
0) https://www.coindesk.com/bitcoin-futures-make-way-new-kind-w...
0) https://www.coindesk.com/bitcoin-futures-make-way-new-kind-w...
Futures markets reduce volatility.
As I understand it, that's true only if there's a balance of buy-side and sell-side hedgers. Owners and miners are sell-side hedgers. Who are the buy-side hedgers?
Can you do an "Explain it like I'm 5" of this? I don't doubt you but I'm struggling to make the connection. Will futures affect the pricing of the underlying asset? (I don't think so?)
I think you are saying "futures reduce volatility for the trader" but I'm not sure.
I think you are saying "futures reduce volatility for the trader" but I'm not sure.
It allows participants to short and therefore should allow more balanced flows.
However one needs some pretty steel-made cojones to short a bubble....
However one needs some pretty steel-made cojones to short a bubble....
More specifically, it allows one to short with limited downside. There are some exchanges that provide naked short positions in Bitcoin, but those have theoretic infinite downside and your broker will force you to liquidate at a loss at a certain point.
With futures, however, you can put together positions that will provide a known limit on your downside for short positions. This provides a more appealing avenue for shorts to get in with much less risk.
With futures, however, you can put together positions that will provide a known limit on your downside for short positions. This provides a more appealing avenue for shorts to get in with much less risk.
I am not sure I get how the risk is limited with a future. If the price goes to $1m when you traded at $16,000, you will have to make a $984,000 margin call payment (+margin).
With a short position using futures you will also be forced to liquidate at a loss at a certain point. It’s not really different from shorting BTC.
It helps price in future price shocks, and adds liquidity, which has a known dampening effect on volatility.
With respect to the latter, my own personal theory for why this is is that more liquidity means more individuals actively trading the asset, and that translates to more non-correlating factors affecting the price. This makes it less likely that a shock somewhere in the economy will have a significant impact on the price.
Modern economic scholarship properly offers a better explanation.
With respect to the latter, my own personal theory for why this is is that more liquidity means more individuals actively trading the asset, and that translates to more non-correlating factors affecting the price. This makes it less likely that a shock somewhere in the economy will have a significant impact on the price.
Modern economic scholarship properly offers a better explanation.
Also the CME & CBOE bitcoin contracts like many other futures commodities allow "spread" trading across duration. This has a dampening affect as well. In a lot of commodities spread trading volume exceeds that of the outright.
And that volatility should make this asset class (if it is one) unsuitable to trade for most banks and many institutional investors, who have VaR limits. The VaR of bitcoin is off the charts.
> In fact, the Bloomberg system is a blockchain, just instead of having the users control it, we control it, but it has all the attributes of that.
Thus proving that whatever he thinks about Bitcoin, Michael Bloomberg is clueless about the blockchain.
Thus proving that whatever he thinks about Bitcoin, Michael Bloomberg is clueless about the blockchain.
Actually they might be running a separate Blockchain to manage their side. Similar to https://github.com/jpmorganchase/quorum which uses raft con sensus.
He is being confusing though and you could be right so...
He is being confusing though and you could be right so...
They are not running a separate Blockchain and equating their system with how Blockchain works is quite misleading. I work in finance and use Bloomberg's system daily. It's essentially an online data provider/analytics platform running in a terminal-like environment. I don't think they would sneak in a private Blockchain without clients knowing about it. Even if they would, what for?
I wouldn't be surprised if someone in the IT department explained to him that they are using some kind of consensus based mechanism (zookeeper, etcd, consul etc), that works just like a blockchain, to manage the bloomberg infrastructure. He then goes on tv and tells the world that bloomberg is using The Blockchain. Just wild speculation but its seems plausible to me.
Edit: a quick google lead me to Bloomberg's consul deployment cookbook: https://github.com/bloomberg/consul-cluster-cookbook/blob/ma...
Edit: a quick google lead me to Bloomberg's consul deployment cookbook: https://github.com/bloomberg/consul-cluster-cookbook/blob/ma...
zookeeper, etcd, and/or consul function according to something only trivially different from Nakamoto Consensus? That would be news to me. His IT dept must have misinformed him.
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Why can't they run an internal blockchain?
If you're a single entity, your don't need a block chain. Just a list.
Because that's just a merkle tree.
Why can't a fish wear swimfins?
A blockchain is a solution to the problem of establishing consensus without relying on an authority. If your systems relies on trust in an authority, adding a blockchain is good for one thing: marketing.
A blockchain is a solution to the problem of establishing consensus without relying on an authority. If your systems relies on trust in an authority, adding a blockchain is good for one thing: marketing.
You just provided a reason to use a block chain, not a reason that it is implausible.
Whether or not it is something you think of as a good reason, “marketing” is a real reason things get done in businesses.
Whether or not it is something you think of as a good reason, “marketing” is a real reason things get done in businesses.
The bigger it grows the harder it will fall. The design/implementation of bitcoin as a currency is severely flawed.
Projects like Ethereum, Hyperledger, and IOTA have a more long term focus. Full Disclosure: I have no positions in any crypto but have been reading a lot. Also, in the midst of two courses that go that cover crytpocurrencies and blockchain tech.
1. https://www.coursera.org/learn/cryptocurrency 2. https://www.edx.org/course/blockchain-business-introduction-...
#1 gives a very good history of what a blockchain is, and how is implemented by bitcoin. This is enough to keep me away since I have learned about all the technical flaws:
#2 discusses blockchains, and consensus algorithms. This project shows lots of promise. They just added code that allows the consensus algorithm to actually be changed via a transaction, without a hard fork.
Bitcoin gets all the credit for introducing the world to the blockchain concept, but its far from a sound solution as a cryptocurrency.
Projects like Ethereum, Hyperledger, and IOTA have a more long term focus. Full Disclosure: I have no positions in any crypto but have been reading a lot. Also, in the midst of two courses that go that cover crytpocurrencies and blockchain tech.
1. https://www.coursera.org/learn/cryptocurrency 2. https://www.edx.org/course/blockchain-business-introduction-...
#1 gives a very good history of what a blockchain is, and how is implemented by bitcoin. This is enough to keep me away since I have learned about all the technical flaws:
#2 discusses blockchains, and consensus algorithms. This project shows lots of promise. They just added code that allows the consensus algorithm to actually be changed via a transaction, without a hard fork.
Bitcoin gets all the credit for introducing the world to the blockchain concept, but its far from a sound solution as a cryptocurrency.
I agree that Bitcoin is extremely risky, but I've looked at IOTA, and it's an utter nonsense project. It's centralized, because the tangle security model it purports to use doesn't work, and its developers have pulled antics like explaining away a flaw in the client code by claiming it was put there intentionally to thwart copycats, and claiming a "partnership" with a company after IOTA used that company's software.
Hyperledger meanwhile is not a distributed cryptocurrency project. It's software for building consortium blockchains, meaning blockchains run by trusted third parties.
I agree with you on Ethereum. It's now processing more transactions than all other decentralized blockchains combined, including Bitcoin.
Hyperledger meanwhile is not a distributed cryptocurrency project. It's software for building consortium blockchains, meaning blockchains run by trusted third parties.
I agree with you on Ethereum. It's now processing more transactions than all other decentralized blockchains combined, including Bitcoin.
> “Given that this is a new product, as expected we are evaluating the specifications and risk attributes for the bitcoin futures contracts as part of our standard due diligence process,”
How can you be diligent at identifying risks in bitcoin derivatives? O_o
How can you be diligent at identifying risks in bitcoin derivatives? O_o
The easy case is: Alice owes Bob 1.0 BTC in year 2020. Between then and now, BTC forks into BTC and BTZ -- and so now Alice Owes bob 1.0 "new" BTC and zero BTZ. On net, does this mean that whatever fork retains the legal position of BTC is going to be in more demand than hypthetical BTZs?
Given that, will it create a incentive for forkers to fight for legal recognition such that debts can be / have to be payed in their own currency. And if they do this with some success, what happens when instead of having a clear BTC/BTZ split, you have a BTC_forkA and BTC_forkB for paying debts in.