ETF, Bitcoin and the risk of manipulation with derivates

GymClassHeroes

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Quote from: BitHodler on September 29, 2018, 06:25:27 PM

ETFs that are backed with the underlying asset stimulate long activity rather than short activity, but the futures markets could turn out to be an obstacle, but the volumes have to pick up significantly before that happens.

On the other hand, people start to worry about manipulation with financial instruments but completely forget that the market has always been subject to manipulation, especially in the early days.

I think that with more institutions entering crypto, the usual whales will face tough competition which is in the benefit of the market in my opinion. It results in more overall stability and less impulsive pumps and dumps.

Let's be honest, has the market ever respected support levels like how it does so this year?

Rightly said, the idea that whales are betting against each other will make the market more competitive and less prone to wide margins of volatility. As against having just a few whale moving the market to which ever direction they favor,. That is why the bitcoin ETF will be a much welcome development in cryptos

figmentofmyass

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Quote from: deisik on October 08, 2018, 05:19:02 AM

Quote from: figmentofmyass on October 08, 2018, 02:19:03 AM

here you go:

https://www.cmegroup.com/delivery_reports/Gold_Stocks.xls
https://www.cftc.gov/dea/futures/deacmxsf.htm
https://www.cmegroup.com/trading/why-futures/welcome-to-comex-gold-futures.html

only registered gold is available for delivery to long holders. eligible gold is just held in the vault on behalf of various private parties.

as of earlier this week:
410,490 outstanding long contracts
141,829 registered troy ounces
contract size‎ = ‎100 troy ounces

The devil is not as bad as his detail

So we have like 410,490 long contracts (according to the CFTC report) and 423,437 short positions, which you conveniently forgot to mention. That gives us the exchange net exposure of -12,947 contracts (note the minus sign), which is what I asked specifically.

it seems you missed the point. you're just looking at the net, which can drastically change based on market conditions. the point was that COMEX is leveraged to the point that physical delivery is completely impossible for all but a tiny minority contract holders.

i'm not coming at this from a wingnut gold bug angle. i'm just saying the vast majority of COMEX contracts are literally unbacked. that's not debatable: there are longs worth 41,049,000 troy ounces and 141,829 registered troy ounces in the vaults.

that's why the tail can wag the dog. leverage = liquidity and volume. it doesn't really matter if the contracts are truly backed or deliverable.

Quote from: deisik on October 08, 2018, 05:19:02 AM

Now, I have to ask you a painful question (I suspect you already guessed it), i.e. who owes whom and how much gold exactly? Do you really think that if things were as you think they are there wouldn't be enough of those with deep pockets willing to default Comex and wreak havoc in the gold market? Recall the Hunt bros and their (unsuccessful) attempt to corner the silver market in 1980 or George Soros putting the Bank of England to its knees in early 1990's?

i'm not sure what you're suggesting here. i'm just saying that literally, by the numbers, the vast majority of COMEX gold contracts are unbacked.

i'm just talking facts and suggesting that bitcoin markets could end up operating the same way---spot market following massively overleveraged derivative markets just because of the volume. a few years ago, the markets all followed okcoin/huobi, who each had millions of BTC trading volume a day. and now, bitmex holds a similar position with their huge volumes. same idea.......

sana54210

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Quote from: ecnalubma on October 06, 2018, 12:10:19 PM

In conclusion, whales owns these markets and the only thing that small investors can do is safe trade. Harsh reality is they are only the main players of this market and were only holding dust versus their bags, no matter what BS is happening in the background were only here to spectate.

I think ETF would be great however derivatives may not be. ETF is great because it is just simply betting on the price of bitcoin and not actually buying or selling bitcoin, which would mean that even if the ETF gets accepted the market will not change that much because those people are not actually buying or selling bitcoin which means they can't manipulate the prices themselves.

They are just betting on the price of bitcoin. For example when you say "invest on gold" to your broker he is not actually going and buying gold for you, they are just investing on the price of gold not gold itself. Same applies here, which is great for all of us.

deisik

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Quote from: figmentofmyass on October 08, 2018, 02:19:03 AM

Quote from: deisik on October 07, 2018, 06:40:35 AM

Quote from: figmentofmyass on October 07, 2018, 05:14:11 AM

just compare outstanding COMEX claims on underlying gold vs. their registered vaults. what evidence do you want?

Alright, let's start numbers here

As they say, vires in numeris, right? So can you quote the net position of gold futures which are physically delivered at Comex versus the amount of gold they are capable of delivering? This is the hard evidence I want, but please don't lead me to sites like KingWorldNews and ZeroHedge which are posting apocalyptic bullshit nonstop, 24/7, for literally decades on end. As proof, I need official information from the regulating bodies like the CFTC and whoever regulates the gold market in respective countries, or at least exchanges themselves. That should be publicly available info as these futures are not sold in private

here you go:

https://www.cmegroup.com/delivery_reports/Gold_Stocks.xls
https://www.cftc.gov/dea/futures/deacmxsf.htm
https://www.cmegroup.com/trading/why-futures/welcome-to-comex-gold-futures.html

only registered gold is available for delivery to long holders. eligible gold is just held in the vault on behalf of various private parties.

as of earlier this week:
410,490 outstanding long contracts
141,829 registered troy ounces
contract size‎ = ‎100 troy ounces

The devil is not as bad as his detail

So we have like 410,490 long contracts (according to the CFTC report) and 423,437 short positions, which you conveniently forgot to mention. That gives us the exchange net exposure of -12,947 contracts (note the minus sign), which is what I asked specifically. Now, I have to ask you a painful question (I suspect you already guessed it), i.e. who owes whom and how much gold exactly? Do you really think that if things were as you think they are there wouldn't be enough of those with deep pockets willing to default Comex and wreak havoc in the gold market? Recall the Hunt bros and their (unsuccessful) attempt to corner the silver market in 1980 or George Soros putting the Bank of England to its knees in early 1990's?

figmentofmyass

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Quote from: deisik on October 07, 2018, 06:40:35 AM

Quote from: figmentofmyass on October 07, 2018, 05:14:11 AM

just compare outstanding COMEX claims on underlying gold vs. their registered vaults. what evidence do you want?

Alright, let's start numbers here

As they say, vires in numeris, right? So can you quote the net position of gold futures which are physically delivered at Comex versus the amount of gold they are capable of delivering? This is the hard evidence I want, but please don't lead me to sites like KingWorldNews and ZeroHedge which are posting apocalyptic bullshit nonstop, 24/7, for literally decades on end. As proof, I need official information from the regulating bodies like the CFTC and whoever regulates the gold market in respective countries, or at least exchanges themselves. That should be publicly available info as these futures are not sold in private

here you go:

https://www.cmegroup.com/delivery_reports/Gold_Stocks.xls
https://www.cftc.gov/dea/futures/deacmxsf.htm
https://www.cmegroup.com/trading/why-futures/welcome-to-comex-gold-futures.html

only registered gold is available for delivery to long holders. eligible gold is just held in the vault on behalf of various private parties.

as of earlier this week:
410,490 outstanding long contracts
141,829 registered troy ounces
contract size‎ = ‎100 troy ounces

deisik

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Quote from: figmentofmyass on October 07, 2018, 05:14:11 AM

just compare outstanding COMEX claims on underlying gold vs. their registered vaults. what evidence do you want?

Alright, let's start numbers here

As they say, vires in numeris, right? So can you quote the net position of gold futures which are physically delivered at Comex versus the amount of gold they are capable of delivering? This is the hard evidence I want, but please don't lead me to sites like KingWorldNews and ZeroHedge which are posting apocalyptic bullshit nonstop, 24/7, for literally decades on end. As proof, I need official information from the regulating bodies like the CFTC and whoever regulates the gold market in respective countries, or at least exchanges themselves. That should be publicly available info as these futures are not sold in private

figmentofmyass

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Quote from: deisik on October 07, 2018, 01:27:07 AM

Quote from: figmentofmyass on October 06, 2018, 05:34:07 PM

if the market believes a derivative is truly deliverable, it may draw trading volumes/liquidity and therefore affect price. whether all outstanding contracts are truly deliverable is another matter entirely, as we see with COMEX.

It is expectedly the same with any commodity market

hence:

Quote from: figmentofmyass on October 06, 2018, 05:34:07 PM

i imagine it will work like the paper gold market.

Quote from: deisik on October 07, 2018, 01:27:07 AM

As the "population" there consists mostly of speculators who are not in the least interested in buying any physical gold. That's why they are selling before expiry and rolling over.

BTC is a completely speculative market. why would it be any different? in fact, gold actually has industrial and commercial uses, unlike BTC. in both cases, the primary use case is "store of value".

Quote from: deisik on October 07, 2018, 01:27:07 AM

Besides, these are by far the biggest markets out there, so where else should the price be discovered?

and that's how the tail wags the dog.........

Quote from: deisik on October 07, 2018, 01:27:07 AM

And as I told in my previous post in this thread, Bitcoin is different from gold, crude oil, etc since you don't need storage tanks, vaults, etc for it, which is why physical delivery is virtually impossible for such traders in these commodities, but not Bitcoin. Additionally, if we are talking specifically about deliverable futures (say, crude oil), with actual delivery of the underlying instrument, it is not like there are only speculators filling the market. Oil producers (since we are speaking of oil now) are an important part of the market as they are interested in predictable prices for many months ahead. Gold is likely more speculative in this regard, that I agree with, but so far no major exchange has defaulted on their obligations. And yes, I've read all those horror stories about no gold in their vaults

The rumors have been circulating for years, if not decades, but so far no solid evidence has been presented

just compare outstanding COMEX claims on underlying gold vs. their registered vaults. what evidence do you want? Huh

your logic makes no sense---it doesn't matter if shit hasn't hit the fan yet. the point is that 1. not all COMEX gold futures are truly deliverable; it's physically impossible. and 2. the paper market affects spot prices. this means that unbacked contracts can be used to manipulate price. (we know they're unbacked because transparently, the vault can't cover outstanding claims)

do you not think it's a problem if COMEX is trading contracts for more than the entire bitcoin supply? because they can.

Lexurdania

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If ETF approved, i am believe that many institutional investor will come to market. Its will good news because it avoiding from negative news about crypto market. We are know that many people think crypto is a buble or scam market and if ETF approved, market confident will rising

deisik

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Quote from: figmentofmyass on October 06, 2018, 05:34:07 PM

if the market believes a derivative is truly deliverable, it may draw trading volumes/liquidity and therefore affect price. whether all outstanding contracts are truly deliverable is another matter entirely, as we see with COMEX.

It is expectedly the same with any commodity market

As the "population" there consists mostly of speculators who are not in the least interested in buying any physical gold. That's why they are selling before expiry and rolling over. Besides, these are by far the biggest markets out there, so where else should the price be discovered? And as I told in my previous post in this thread, Bitcoin is different from gold, crude oil, etc since you don't need storage tanks, vaults, etc for it, which is why physical delivery is virtually impossible for such traders in these commodities, but not Bitcoin. Additionally, if we are talking specifically about deliverable futures (say, crude oil), with actual delivery of the underlying instrument, it is not like there are only speculators filling the market. Oil producers (since we are speaking of oil now) are an important part of the market as they are interested in predictable prices for many months ahead. Gold is likely more speculative in this regard, that I agree with, but so far no major exchange has defaulted on their obligations. And yes, I've read all those horror stories about no gold in their vaults

The rumors have been circulating for years, if not decades, but so far no solid evidence has been presented

hildacitra

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That is right that the creation of ETF will have much impact of bitcoin. It was created to avoid manipulation of bitcoin price when bitcoin can not be mined anymore or when the transaction purchasing and selling Bitcoin is pear to pear. The price manipulation can be avoid or prevent through smart contract on ETF. All have great purposes.

figmentofmyass

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Quote from: deisik on October 06, 2018, 11:14:13 AM

Quote from: figmentofmyass on October 02, 2018, 04:25:56 PM

yes, cash-settled derivatives shouldn't influence price. but physically delivered derivatives sure can, if there is demand for them.

And here lies the problem, or rather a dilemma

Namely, you can't issue physically delivered derivatives without first accepting the underlying, right? Since otherwise how are you going to deliver at the expiry and with what exactly?

i imagine it will work like the paper gold market. it's widely believed that COMEX futures are the biggest factor for spot price because they have the most liquidity and volume for deliverable gold.

and COMEX futures are physically deliverable, but:

Quote

Therefore, there is no hard upper bound or supply limit on the amount of gold futures contracts that can be created on COMEX. This is very similar to the unit of trading of gold in the London market, i.e. unallocated gold, which is also a derivative that can be created in unlimited quantities. In both cases there is no direct connection to real physical allocated and segregated gold bars.

Technically, the value of any futures contract is derived from the value of its underlying asset, and in this case the underlying asset, nominally anyway, is physical gold. But perversely in the global gold market, the value of the gold futures is not being derived from the value of the underlying asset (physical gold). Instead, the value of the world’s physical gold is now being consistently and continually derived via this out-of-control and unhinged gold futures trading.

Contractually, COMEX 100 ounce gold futures contracts (COMEX code GC) are futures contracts that offer a physically deliverable option, i.e. to deliver/receive 100 ounces of minimum 995 fine gold (in either 100-ounce gold bars or 1 kilo gold bars format) on a specific future date.

However, the vast majority of COMEX 100 ounce gold futures are never delivered, they are offset (closed out) and cash-settled, or else they are rolled over. Only a tiny fraction of these gold futures contracts are ever ‘delivered’. Again, this is similar to unallocated gold in the London market, which is a cash-settled gold derivative.

COMEX is also a speculative market, where leverage (due to the use of trading margin) is used to create outsized trading volumes, and where initial position limits for individual traders are far larger than the quantity of underlying gold being stored in the COMEX approved vaults.

https://www.bullionstar.com/blogs/ronan-manly/comex-rigged/

if the market believes a derivative is truly deliverable, it may draw trading volumes/liquidity and therefore affect price. whether all outstanding contracts are truly deliverable is another matter entirely, as we see with COMEX.

deisik

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Quote from: 1Referee on October 06, 2018, 01:03:07 PM

Quote from: deisik on October 06, 2018, 11:14:13 AM

Namely, you can't issue physically delivered derivatives without first accepting the underlying, right? Since otherwise how are you going to deliver at the expiry and with what exactly? But accepting real bitcoins on an exchange like CME would be a game changer for sure. If you trade, for example, physically delivered futures, you should trade the underlying as well. And I would venture to say that in that case it would beat in its effect and consequence all ETF proposals combined even if they were accepted all at once in their entirety

It depends. Futures by definition are quite short term focused with how they are all tied to an expiry date, which isn't the case when it comes to coin backed ETF's. An ETF share conveniently allows you to bypass the volatile nature of this market that may or may not work against you at the time your future contracts expire. I'm not really keen on financial products that come as 'you win or you lose', especially when it comes to something so speculative of nature as Bitcoin.

There is a gap in your reasoning

Simply put, you don't need these fucking ETF's for the purposes you described. You, and by you here I mean an institutional investor like a hedge or pension fund, just go and buy as many bitcoins as you need directly on the same exchange where Bitcoin futures would be traded, or anywhere they are traded for cash. Exchange-traded funds are good for things like commodities, e.g. gold, which you can't or don't want to burden yourself with keeping. Bitcoin is different in this regard as you don't need reinforced vaults and storage facilities. In fact, all these proposals are no more than a workaround to get Bitcoin accepted by the financial establishment, but they are pretty useless when you can buy as many bitcoins as you please all by yourself at a single click. In other words, you don't need ETF's for things which you buy and put in your pocket (like, say, dollars). On the other hand, futures as well as options, for that matter, are quite handy as they provide a virtually unlimited stack of strategies, including hedging against volatility (options specifically)

1Referee

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Quote from: deisik on October 06, 2018, 11:14:13 AM

Namely, you can't issue physically delivered derivatives without first accepting the underlying, right? Since otherwise how are you going to deliver at the expiry and with what exactly? But accepting real bitcoins on an exchange like CME would be a game changer for sure. If you trade, for example, physically delivered futures, you should trade the underlying as well. And I would venture to say that in that case it would beat in its effect and consequence all ETF proposals combined even if they were accepted all at once in their entirety

It depends. Futures by definition are quite short term focused with how they are all tied to an expiry date, which isn't the case when it comes to coin backed ETF's. An ETF share conveniently allows you to bypass the volatile nature of this market that may or may not work against you at the time your future contracts expire. I'm not really keen on financial products that come as 'you win or you lose', especially when it comes to something so speculative of nature as Bitcoin.

In the end, the demand for these products is all that matters. For every institution there is a product it favors over the other, so we'll see which one becomes the dominant force, but my personal thought is that the ETF's will be it.

ecnalubma

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www.Artemis.co

In conclusion, whales owns these markets and the only thing that small investors can do is safe trade. Harsh reality is they are only the main players of this market and were only holding dust versus their bags, no matter what BS is happening in the background were only here to spectate.

deisik

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Quote from: figmentofmyass on October 02, 2018, 04:25:56 PM

Quote from: deisik on October 02, 2018, 04:01:26 AM

Quote from: aencarnaci on October 01, 2018, 10:54:00 AM

I know derivatives are horrible and it looks scary but bitcoin is barely getting into ETF market, if bitcoin gets accepted as an ETF which I think is still quite far away than there is still a long way to derivatives as well.

Unless Bitcoin proves itself as an established means of payment, all its derivatives will be irrelevant. Derivatives are deriving their value from real value of an asset. It can be said that they are exploiting this value or even abusing it (see oil as an example). But if there is no such value as is in case of Bitcoin (well, at least not to a required degree), its derivatives will have no such support of the solid underlying asset.

i wouldn't say derivatives will be irrelevant. of course, bitcoin must have users, transaction liquidity, etc to have a basis for value. however, i see no reason why derivatives can't be built on speculative value (ie the assumption that adoption will grow). a derivative is just a financial security whose value is derived from the underlying asset, whether because of physical delivery, arbitrage, or some other mechanism to peg prices.

If they are cash-settled they are as close to irrelevant as it ever gets (the point which we seem to agree on)

Quote from: figmentofmyass on October 02, 2018, 04:25:56 PM

Quote from: deisik on October 02, 2018, 04:01:26 AM

Besides, as others and I have previously said on numerous occasions, cash-settled derivatives are not an instrument of influencing the price of the underlying asset simply because there is no underlying asset, only its price across the market

In other words, can the tail wag the dog if this tail belongs to another dog?

yes, cash-settled derivatives shouldn't influence price. but physically delivered derivatives sure can, if there is demand for them.

And here lies the problem, or rather a dilemma

Namely, you can't issue physically delivered derivatives without first accepting the underlying, right? Since otherwise how are you going to deliver at the expiry and with what exactly? But accepting real bitcoins on an exchange like CME would be a game changer for sure. If you trade, for example, physically delivered futures, you should trade the underlying as well. And I would venture to say that in that case it would beat in its effect and consequence all ETF proposals combined even if they were accepted all at once in their entirety

raven.tiu17

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its the start of something very big in my opinion....dont listen to the mainstream media who are not telling it how it really is.... all the big banks and large organisations are waking up to Bitcoin & cryptocurrency's... do your own research guys, every market has their own derivatives.

Evetemot

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Quote from: ForkThis on September 29, 2018, 06:03:54 PM

There are many news about the ETFs proposals that are being discussed by the US SEC. The creation of these will have a strong influence in Bitcoin and many people said that the futures over bitcoin could potentially tame Bitcoin and ETFs may have an even stronger effect.

For me is easier to understand if I use a football comparison: Let´s say that I bet 4 million on a game, so if the Red Team wins, I will make 4 millions of profit. The manipulation could occur if buying the referee and perhaps a few key players only costs 1 million. So:

- I bet 4 million.
- I spend 1 million in bribes.
- I get 8 million once I win.

With bitcoin or other coins you don´t have to bribe, you just buy and rise the price or sell if you need it to be low and then you make your profit with the leverage of the derivatives. e.g. Raising the price of bitcoin on a certain day would cost 1 million. If you used leveraged derivatives you will get x5 the increase and that can be more than the million you´d put in.

There is a long article here about the topic, and some historical references here and here. The references date back to BC.

"Jumping forward to Mesopotamia in the late 1700s B.C., trade and commodity security became dictated by rulers’ codes, which functioned as some of the first recorded contracts. Like those by Hammurabi of Babylon, "

This is not the first time manipulation is happening in the market, it has happened a lot of times. Cryptocurrencies are subject to manipulation and there are people who uses that as a way for them to make profit. So this is not the first time and I don’t think it will be a reason for Bitcoin to fall or whatever. No matter what happens, people always come back to Bitcoin.

tenebriscaelum

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Quote from: oriontab on September 29, 2018, 06:59:31 PM

Every market is manipulated,even the highly regulated ones such as stocks and shares.the introduction of ETF will only it less obvious as the players are more. Imagine watching a football match with just 2 players on each side, the ball will move faster,you could easily score a goal. Now imagine same pitch with 20 players on each team, the ball will hardly move in any direction and will take a lot of effort to get things going in a certain direction .

I highly agree to your comment that every market is manipulated, in actuality it is just a matter of how they are controlling it. So with different market comes a different way of manipulation and even though some regulations change people who does this will just adapt and find new ways so it is up to us the investors to be aware of it.

timerland

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Any derivative that holds leverage will be prone for manipulation.

In fact, anything that is being traded that is not actual, real, bitcoins and some form of token on an exchange without official, full reserve backing could be used for manipulation. We see this with all commodities, including precious metals with paper gold and silver.

Anyhow, it'll be interesting to see what these derivatives/futures do to the market once they are introduced for institutional investors on a large scale. Nothing we can do to stop them, but it's a reason why I personally really don't care for any news about ETF approvals, futures, etc.

figmentofmyass

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Quote from: deisik on October 02, 2018, 04:01:26 AM

Quote from: aencarnaci on October 01, 2018, 10:54:00 AM

I know derivatives are horrible and it looks scary but bitcoin is barely getting into ETF market, if bitcoin gets accepted as an ETF which I think is still quite far away than there is still a long way to derivatives as well.

Unless Bitcoin proves itself as an established means of payment, all its derivatives will be irrelevant. Derivatives are deriving their value from real value of an asset. It can be said that they are exploiting this value or even abusing it (see oil as an example). But if there is no such value as is in case of Bitcoin (well, at least not to a required degree), its derivatives will have no such support of the solid underlying asset.

i wouldn't say derivatives will be irrelevant. of course, bitcoin must have users, transaction liquidity, etc to have a basis for value. however, i see no reason why derivatives can't be built on speculative value (ie the assumption that adoption will grow). a derivative is just a financial security whose value is derived from the underlying asset, whether because of physical delivery, arbitrage, or some other mechanism to peg prices.

Quote from: deisik on October 02, 2018, 04:01:26 AM

Besides, as others and I have previously said on numerous occasions, cash-settled derivatives are not an instrument of influencing the price of the underlying asset simply because there is no underlying asset, only its price across the market

In other words, can the tail wag the dog if this tail belongs to another dog?

yes, cash-settled derivatives shouldn't influence price. but physically delivered derivatives sure can, if there is demand for them.

whether institutions really care about bakkt's futures launch remains to be seen.

Topic: ETF, Bitcoin and the risk of manipulation with derivates (Read 368 times)