Who’s Afraid of Bitcoin? The Futures Traders Going Short

https://www.wsj.com/articles/whos-afraid-of-bitcoin-futures-traders-going-short-1513036234

by thisisit • 9 years ago

54 83 9 years ago

thisisit3• 9 years ago

There is another story behind this too:

https://finance.yahoo.com/news/interactive-brokers-launches-...

This particular broker IB has accounted for nearly 50% of the traded contracts. But, they are not allowing any shorts at all. They wont even allow market orders

Due to the extreme volatility of cryptocurrencies, clients will be unable to assume a short position. In addition, only limit orders will be accepted.

ISL• 9 years ago

Not allowing market orders can be reasonable.

Trading with market orders is generally like playing with fire. If you're comfortable with the current market price, just place a limit order at or slightly above market price, and it will usually fill.

Telling the market: "I want to trade now, and price is completely irrelevant" can be a recipe for a bad time.

thisisit3• 9 years ago

Not allowing market orders can be reasonable.

How do you figure? People in cryptocurrency are already not afraid of the rampant volatility so this move seems to protect the broker and not market participant.

This also raises another question - whether these guys have stop orders? Because stop orders actually become market orders once triggered and help people get out at whatever price possible. Turn this into stop limit and it tries to find the "best" price possible and many people left holding the bag if things go south.

SilasX3• 9 years ago

I've tried doing that -- even with large spreads, the market moves before I can input something within the spread. (Speaking mainly of Gemini.)

matwood• 9 years ago

They are also requiring 40-50% margin per contract (1 contract == 1 BTC).

wehadfun• 9 years ago

I respect wsj paywall so did not read article.

I was reading that the fees to short it are really high.

MandieD• 9 years ago

As Keynes might or might not have said, “the market can remain irrational longer than you can remain solvent.”

ringaroundthetx• 9 years ago

and it can be rational

ktta7• 9 years ago

The weird thing here is, Bitcoin is clearly a shitshow. There's not much debate about it. It has no redeeming qualities compared to other coins except the global hashrate. And it is worse off on so many aspects.

sp8215432• 9 years ago

How many times has bitcoin hard-forked because of the protocol being compromised? How much daily volume is it currently supporting? How does the velocity of the codebase compare to other coins?

lend000• 9 years ago

Hashrate and adoption are important though -- anyone can create the smallest tweak to Bitcoin that may improve it to some degree, but the market can't swap chains every day to accommodate these changes. Bitcoin is good enough for now, and that keeps it on top.

pikchurn7• 9 years ago

That's a lot of assertions without any backup. Here's one thing bitcoin has that no altcoin has: the legitimacy of its network buy-in from being first to market. And since any technology another chain has can be adopted via sidechain, extension block, or soft fork, why not standardize on the one currency that has achieved the most adoption?

mlevental• 9 years ago

it's hilarious how many times I've seen this repeated on hn over the past couple of weeks.

aviv5• 9 years ago

Litecoin is the new Bitcoin. People are realizing there is nothing special about Bitcoin, and I'm saying this as a HODLer. Stores of value will come and go. Bitcoin will eventually lose its supremacy. It's not like people use it as a currency at this point. And if they did - Litecoin is far more efficient.

fastball• 9 years ago

Why do you think Litecoin is more efficient?

aviv5• 9 years ago

Less fees, shorter confirmation times, etc.

cantrip3• 9 years ago

I would argue that Ethereum is where it's headed. Ethereum does everything that Litecoin/Bitcoin does along with a smart contract programming layer built into it, and a great team of incredibly smart people iterating on the platform.

Millions upon millions of dollars are being poured into companies built around Ethereum for a reason. If you look at the open positions for Consensys you can see just how many positions and projects one company has going on.

juanmirocks3• 9 years ago

Less not forget the competitors to Ethereum too, such as EOS or Cardano. These should provide better scalability.

arca_vorago• 9 years ago

I would argue Monero is the first stop before the coins figure out a more environmentally friendly method, because the killer feature of a currency is anonymity.

I don't know much about ethereum though, does it offer anonymity functions of some sort?

grubles• 9 years ago

Anything Ethereum does can be done as a Bitcoin sidechain.

SilasX3• 9 years ago

Yes, in theory Ethereum is the better way. I was a strong believer in the "flippening" and exited some of my BTC position based on that belief.

But ... it may be a long time before that theoretical superiority translates to practical. Ethereum has been plagued by a hard fork and semi-regular thefts that exploit hard-to-write contracts, plus the Parity bug:

https://arstechnica.com/information-technology/2017/11/with-...

None of this inspires confidence. Only after ETH can go for a while without these nightmares can it regain its well-deserved spot in the lead. (And imho that would involve a migration to a less error-prone language.)

The closest Bitcoin had was the database code in a client implementation that had to be fixed (and had major consensus).

matte_black5• 9 years ago

But if Litecoin is more likely to be used as a currency wouldn’t that mean it would have to have no chance of appreciating with the same volatility that sent the price of Bitcoin to $20k?

Personally I don’t give a damn about which coin is the most practical currency, just show me which one is most likely to have a meteoric rise so I could throw a few bucks into it and pull out before it all goes bust.

aviv5• 9 years ago

That ship has sailed. Save your money so you can afford a time machine. :)

But one to watch is https://www.telco.in/

pascalxus• 9 years ago

At this point, it feels like investing in Penny stocks, just hotter.

although, to be fair, at least with penny stocks, they actually represent some companies whereas blockchain coins are more about a store of value and a bunch of other stuff

stale20022• 9 years ago

I'm surprised that of all the Altcoins that you could have picked, you chose litecoin as the one that is better than Bitcoin.

Litecoin has never been about actual utility or usage. It has always just been about being a store of value, and just copying every development from Bitcoin.

There are definitely altcoin that are different and interesting in meaningful ways. But not litecoin.

matte_black5• 9 years ago

People don’t want a different or meaningful coin.

They just want a better Bitcoin.

curyous• 9 years ago

Bitcoin Cash scales far better than Litecoin.

aviv5• 9 years ago

Bitcoin Cash AKA ScamCoin

h43z• 9 years ago

the article is pay walled

nerfhammer• 9 years ago

Wall Street being able to buy Bitcoin might increase demand, but they might also do things that would at least at times amplify sell pressure like panic selling, shorting it, leveraged shorting, margin calls

westurner• 9 years ago

Shark futures traders here to save the mf'in day!

sillysaurus3• 9 years ago

Non-paywalled: http://archive.is/aCcos

meritt2• 9 years ago

Shorting futures does not necessarily mean there's negative sentiment. There's a large arbitrage opportunity right now. Futures are going for about $1,000 more than BTC itself right now and you can make risk-free* (assuming you know how to securely store your private key) profit. Doing so requires selling a future.

https://www.bloomberg.com/view/articles/2017-12-12/bitcoin-a...

* edit: See option_greek's excellent comment below.

option_greek2• 9 years ago

Usually there isn't any risk in this scenario but thanks to cboe rules that cap volatility at 20%, there is quite a bit of risk hidden here. Say, you buy btc and short the future. If btc drops by 30% in a day, future trading will be halted at 20% which means that you can lose money if it is an expiry day. Also, CBOE and your btc exchange aren't linked. So you will have to put up additional margin when btc goes up and your future is losing money.

meritt2• 9 years ago

Expiry day is going to be very interesting then. I had no idea their volatility rules would apply to expiring contracts too, that's insane. Why would anyone want to trade that instrument?

where_do_i_live• 9 years ago

trading is halted for _minutes_ 2min then 5min... hardly an earth shattering pause.

polymath42• 9 years ago

There's a large arbitrage opportunity right now. Futures are going for about $1,000 more than BTC itself right now and you can make risk-free* (assuming you know how to securely store your private key) profit. Doing so requires selling a future.

Not really. You have to post margin against your short position, which is costly and could rapidly lead to a margin call where you are forced to close your short position at the worst possible time (futures price surges, you are closed out in the futures but still long the cash Bitcoin, and then the spot price crashes before you can sell your cash position). Furthermore, there is a non-trivial cost of carry - properly securing your Bitcoin private key involves a costly cyber security infrastructure and operation. Then there is the massive counter party credit risk that you take on when facing the cash Bitcoin exchange (eg Mt. Gox). Finally, there are the unknown unknowns ... this is the first week of trading for a brand new type of futures contract created on the back of a bleeding edge technology bubble, things could go wrong in all kinds of unforeseen ways. So I would submit that a $1000 cash vs. futures spread is in fact not some huge arbitrage opportunity (or, in other words, there is no free lunch here in front of this steamroller).

Who’s Afraid of Bitcoin? The Futures Traders Going Short

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