Topic: why CBOE and CME futures trading may LOWER / SLOW the price of bitcoin. (Read 899 times)

Well short term peaks happen all the time. I'm not arguing against that. Just since this spring there have been short term peaks leading into corrections in June, September, early November, late November. Of course they will continue. Recently these short term peaks have only lasted a week. I'm sure we'll get some longer ones of a month or two like we had earlier this year, but that is healthy for the market, doesn't mean the growth this year has just been a phase that will soon end.

CBOE CEO Edward Tilly daring Jamie Dimon to take the short side of Bitcoin futures trading! Lol

https://www.youtube.com/watch?v=Lyf7ybUNFU4

Also, I liked this quote:


    

There will be a short term peak, even if this isn't it.

And 2014/15 certainly did not feel like a whole lot of adoption to me. It was a blip in the long run but it was a monster when we were in it. Professional shorters don't look at grander arcs nor do they care nor should they. They look at what they can play with in the immediate future.

Who says we're at a peak right now?

And you think rapid adoption of Bitcoin is a phase? It's not a phase. It is the long term trend that has been going on since the first Bitcoin exchange. User adoption is still tiny on the global scale. This "phase" has a lonnnggggg way to go still. It will end when the market matures likely in the billions of bitcoin users.

I'm not saying they won't try to play. I'm saying with all the new money coming in all the time, its gonna be extremely hard to win the shorting game they may try to play. Sure they can win if they time everything correctly. But each investor isn't going to be able to control the market, because even if they buy a lot they will only have a very tiny amount of the market. This isn't like gold where banks already control the supply. And this isn't a mature market where growth is a few percent a year. Growth is exploding so to short Bitcoin they are going to have to fight against all that growth. If they try to short Bitcoin $2000 but it has appreciated $2000 since they bought their future short they're gonna have to fight against all those gains plus the amount they wanted to short, and in a market where people are all too eager to buy up a low current price that was a high price just a short time ago it's gonna be very dicey to try to short this game. And sure if the price happens to drop below their short price during a correction while their future contract is still open, they could try to trade it away to take their profits, but that involves having to sell it to someone who thinks the price is gonna keep falling, and anyone who watches the bitcoin market knows that is a surefire way to lose money so selling shorted contracts early is gonna be hard. It's gonna be hard to find the next greater fool to buy up a short from you on an exploding asset!

Also there are limits being put on traders of futures. There is a limit on how many futures each investor can hold at one time, which is intended to stop a big investor who wants to corner the market.

This is a phase. And all phases peter out eventually. There'll be peaks and troughs of hype. We're at the peakiest peak so far. There will be a run downhill eventually until the next one kicks off. Perhaps one day there will be an Eternal September but even then it'll be playable.

Hardly a concern in the first few weeks at least.

No hey I get what you are saying. But no matter how much they leverage, they will only make money if they are able to crash it down to below whatever their futures short price is. If it even just barely misses the price of their short they lose a TON of money, especially if they're using leverage. And the rapidly increasing adoption of Bitcoin isn't gonna make it any easier for them to crash the price. Corrections recently have only lasted a couple of days before the price rebounds and hits new ATHs by a week after the start of the correction. Now sure you could say well that's because you think Wall St has been buying on the dips. Well they will still be buying on the dips when futures goes live because they are all gonna have different targets for shorting the price, different timelines, so they're gonna have to stock up consistently.

But I do agree with your last statement. Whether or not they attempt this strategy and whether or not they fail and lose a ton of money or succeed and make a lot of money, the price will just keep going higher. If they do try to do this if anything it would just make Bitcoin even more volatile than it's been! Which would be funny since people think futures would somehow make it less volatile.

No, because they are gambling that the price would go down, so they will receive 10x what they sell, which, if they sell for half of what they paid first, would actually be 5x of what they buy.

In leverage they borrow money from CME, and use it to speculate that the price will go down, in those kind of self-fulfilling "prophecies". If they are buying bitcoins right now, they just dump it right before the contract expires, take the damage from the bitcoins sold, and the profits from the contract, which is made entirely in cash.

But this will only affect the price if people panic, since most of the coins are not on the exchanges, contrary to gold which is held in custody by the government. Hence the need to inform people about the mechanism, so that they prepare psychologically for it.

I know there are many new users joining Coinbase, but we dont know if most of the money are coming from them or from those institutional investors, who are buying bitcoins to dump it and take profits from gambling in futures.

However, as they short it, they will pump it again, even more so this time because they will have even more leverage. They will rinse and repeat this process using borrowed money. So expect a rise to 25k in January, maybe 70k in March.

You supposition relies on the price crashing down to whatever the try to sell it at. It doesn't matter if they set a sell order at half the price, it has to go through the entire order book to get down that far. Or even if it did, people would buy it all up extremely quickly. As we've seen in the past two corrections, which came all the way back up to hitting ATHs after one week! Also you gloss over your point that they are selling their bitcoins for half price! So they're definitely losing money, in the hope (read: risk!) that they can crash the price enough to gain money on some leveraged futures contract (btw do these futures exchanges even offer leverage?) and if they fail guess what they don't just lose half the money they used on the bitcoin, they end up losing wayyy more money than they spent since in your example they leveraged 10x!

That would be an insane risk to take. Now what they might do is buy bitcoin, wait a while until they've made good profit, and then try this. But then still the price will keep going up since all these investors have to buy up and wait to make profit before trying this. Because if they fail they would want to at least have the profits from their bitcoin offset the losses from their futures failure.



And as far as your bolded part, judging by what coinbase has said, there's probably been well over a million new people who have gotten into bitcoin just in the past 5 weeks or so. You ever think that maybe the huge influx of new money coming in could be responsible for a lot of the huge rise in price? Not to mention the fact that your claim that it keeps on rising with no correction is entirely false as we've had two corrections in the past month!

https://www.investopedia.com/terms/l/leverage.asp

Leverage is playing with money you dont have.

You just borrow it from the house and put it in some asset.

In a bear market, leverage is used to short positions quickly.

But as it happens with gold, the house need to hold the asset in custody so that shorting would affect its price.

Notice the constant pump recently, only green candles and no correction. This is not the behaviour of our usual whales.

This is the behaviour of someone who received a green light to buy and is covering a lot of positions, rising the price up. In other words, the hedge funds themselves are buying bitcoin to hold it in custody, as digital gold.

However, the difference here is that most gold is held in custody, by States, by banks and stock markets, whereas bitcoin is hodled by its users. Most of the bitcoins are not on the exchanges, and the limited supply keeps the price rising.

Now, lets imagine a hedge fund buy one million dollars of bitcoins in Bitstamp, for example (I dont know if it is the fund or CME itself who buys it, but lets suppose its the fund). They hold it in custody, then bet for a fall in CME, using 10x leverage, that is, they borrow 9 million dollars and bet on half the current price.

Then, they dump their coins in Bitstamp, for half the price they bought for. The weak hands panic and sell their coins, some hodlers get out of their hideouts and throw some of their coins too. The price drops to half, the fund win the bet, and get 10 million dollars. They can use one of these to buy bitcoin again, so the price will pump one more time, the same way its pumping now, only green candles.

Now, I doubt one million dollars would make a difference, but these funds have millions at their disposal.

I dont know if the whales know about such mechanisms, but people should be informed about what the sharks can do using their instruments. They can margin-trade with higher values than in any bitcoin exchange, and they will settle it in cash. However, someone needs to buy the supply. Limiting the supply might reduce the shorting effects, and those funds can lose their bets and get rekt, but for this people should be hodling, even in the face of a quick fall.

Yeah Bitcoin Futures is not going to slow Bitcoin down. It's for people who don't want to participate in the real bitcoin markets and just want to gamble on the price. People always bring up gold being held down by gold futures. Bitcoin and gold are quite different. Gold was already controlled by the banks, which is what made it possible to control the price. Wall St doesn't control the Bitcoin supply. Because trading physical gold is unreasonable the gold paper markets was the only way to price gold, so its these markets that the price is based off of. Whereas with Bitcoin the "paper markets" aka futures will just be keying off the real Bitcoin price, not dictating it. It's just Wall St looking to gamble off a price ticker so they can make money from each other, nothing more.

I don't think so, bitcoin futures won't slow down the increases in bitcoin price.
Bitcoin futures is a place to gamble about bitcoin price for a certain time-stamp based on Bitcoin Reference Rate which calculates from some big exchanges such as Bitstamp, Gdax, itBit, and Kraken. These exchanges are the real market makers, and bitcoin futures contract's holders will bet whether it's going up or fall down, while the price constantly rises, it's an obvious guess.
For investors who bet it will rise, they will buy more and more bitcoin to make sure they will win the contract.

True. But I'm still worried if they dont have any new trick to play with.

And if they had actually bought bitcoin and are being responsible for the current pump? There's no correction, its only rising and rising. They can just dump it, as any whale can, except that they have 100x more money than any whale.

This are "cash-settled". That means they're really just betting on the price. Neither side buys any bitcoins.

http://www.wikinvest.com/wiki/Cash_settlement

Still can't get why you're reading/posting on this board ??

any trader anywhere can immediately and instantly take delivery of their bitcoin wherever they are in the world 24/7. they'll know it's real, it can be verified, no one can take it off them, it can't be faked.

no gold trader has ever had that option anywhere ever. it's impossible to achieve. they've always had nothing but promises and may never have touched or seen any real gold in a lifetime of trading it. this was long before stuff like gold etfs arrived. it's always been that way.  

that makes it a totally different proposition. i don't think enough wall street guys realise this. they might think it's just another thing you can use to pull the wool over everyone's eyes. it's pretty much the first and only thing that doesn't allow that which is why it's such a big deal.

Excuse me for maybe being a bit slow but can someone explain to me what it is that I have missed, to my mind a futures contract is just an agreement to buy/sell at a later point in time for a set price and so bitcoin will then be transfered at that date? How is that feasible without involving bitcoin?

Of course you could not make direct comparison with gold. Gold's immovable and expensive to store property indeed makes it different from BTC. because it means for example, it will cost you approx 1% to hold gold but holding real BTC is not as nearly as expensive.
BTC's easy to move nature also means any anomalies in the futures market could also easily be arbitraged away.

It's the scale and lack of apparatus that will have turned off institutionals. I don't see how anyone could take in the percentages and not drool at the possibilities though of course the bigger it gets the more sluggish it'll be, however right now it really doesn't seem much tamer than when it was in the hundreds.

The more I read about it the less I understand so I'm sitting back and saluting whatever may happen.

I have seen various scenarios being described by people as to how they think CME will impact this market negatively, but it's empty speculation since we don't know how things will play out. It may also turn out that there won't be much interest from institutional parties at all, which again is empty speculation, but as long as we haven't seen them start trading, everything is and will remain empty speculation. People think to know exactly how things will play out, but we've seen how this market crushes everything they come up with.

Dude, CME and CBOE are implementing the exact same methodology as gold futures.  The paper contracts are settled in cash. Next to no BTC is involved. Its a moot point.

You can't move, sell, verify or store physical gold without a huge amount of hassle.

There's no point making this comparison.

They stuck a paper market on top of gold as otherwise there basically isn't one.

That's not the case with bitcoin.

People will not pay attention to prices that are obviously not based on real Bitcoin. Exchanges that remain pure to the real Bitcoin price and don't involve themselves in future will be the market makers, because anyone paying real BTC for the same prices as the manipulated future-market BTC prices is a total retard. If it's not backed up by the underlying asset then the resulting price is never a market maker. Basically it will have no influence on the price. Futures only guide prices when the underlying asset doesn't exist yet (the fork's futures for example). Gold is not BTC.

How much time do you think it will take for them to just destroy it?

The community is not reacting to it, instead it rejoices on ATHs and is not paying attention to the fact we dont have any correction anymore.

I'm pretty sure that they're accumulating bitcoins for that purpose. And the hedge funds are bigger than any bitcoin whale -they're bigger than the Winklevoss brothers.

CNBC screen, not your bitcoin exchange screen.

This will only affect the price if they incorporate all bitcoin exchanges in their casinos.

Every country that have a (physical) gold exchange have it annexed and controlled by its stock exchange, which in turn is controlled by the State and hence is centralized. From there they have ETFs and futures.

Gold is not a decentralized trading system as bitcoin is, that is the reason why the price is always kept down. You dont have a independent gold exchange, as we have with bitcoin.

The only way they can affect the price is if the hedge funds buy bitcoins themselves and dump it when gambling for low prices in futures. But then theres the whales, and most whales are holders, and some of them just hate the centralized financial system.

That being said, it will still hinder the progress of the rise of bitcoin. It will surely make a lot of fiat to go towards it that is owned not just by big institutional investors but it will also attract whales as well but it will only be temporary. I like normal gambling on btc gambling sites more though rather than bet with CME futures though. Considering it's effects in the long run, I think it won't be that massive as it will only temporarily draw away investors from btc.

The only thing that will suppress the bitcoin price is the fact that the big institutional investors will buy btc futures,instead of buying bitcoins.This demand won`t help for increasing the bitcoin price.
I can`t agree completely with your theory about the futures contracts.I think that futures and all the other derivatives are like market gambling.One player bets for a higher asset price is the future,the other player bets for a lower price.It doesn`t matter that the futures contracts are more than the bitcoin mined.
It`s just gambling.

These futures contracts are the same as Gold futures contracts. First, its all paper and settled in dollars not BTC. More importantly, if you look at the Gold Futures market there are more Gold contracts than gold available: 542 contracts to 1 ounce of gold.   The net effect is artificially keeping gold prices suppressed! If they overhaul that system and settle in real gold or mandate 1 contract per available ounce. gold price would skyrocket!

They are perpetrating the same scheme with BTC paper futures... the net result will like lower the institutional demand for BTC! Not the big upward pressure on price you would expect.  



Here's Why the Gold and Silver Futures Market Is Like a Rigged Casino...

https://www.moneymetals.com/news/2016/05/16/silver-gold-futures-market-000868